Gold rose slightly as the dollar continued to weaken against the yen, making the precious metal, which is priced in the US currency, more attractive to many buyers.
Gold rose in spot trading by as much as 0.7% to surpass $4,435 an ounce, erasing its losses from the previous session.
The Japanese yen was nearing its strongest level against the dollar this year, continuing a rally that began last week amid growing expectations that the Bank of Japan will raise interest rates. Gold typically moves inversely to the dollar.
However, any gains for gold were limited by inflation risks stemming from the prolonged disruption of energy flows through the Strait of Hormuz. Oil prices rose following renewed clashes between the United States and Iran, with benchmark Brent crude nearing $100 a barrel.
Traders are now pricing in a roughly 60% probability that the Federal Reserve will raise interest rates as early as next week.
Tighter monetary policy typically puts downward pressure on gold, which does not offer a yield. Consumer price data due later this week is expected to provide crucial clues to the Federal Reserve's likely interest rate decision at its meeting on September 14-15.
Christopher Wong, a strategist at Overseas-Chinese Banking Corp., said that high oil prices are keeping inflation concerns alive, so this week's U.S. producer and consumer price data will be key in determining whether yields will continue to rise or fall.
Gold is moving around $4400
Since rebounding from near $4,000 in July, gold has settled within a relatively narrow range. The metal has moved up and down around the $4,400 level, as traders have repeatedly reassessed the outlook for the Federal Reserve's monetary policy.
Despite short-term pressures, many investors are betting that gold will continue to rise gradually as it regains its traditional value as a hedge for investment portfolios.
The resurgence of central bank purchases and so-called currency devaluation trading brings to mind the strong rally that pushed gold to a record high near $5,600 in January, and some of the world's biggest money managers have rebuilt their positions in the metal in recent weeks.
Wong said: “We remain positive on gold in the medium term, supported by broader investor participation, central bank demand, continued concerns about fiscal credibility, and diversification of reserves away from the dollar.”
He added: But after the strong recovery in August, we believe the next phase of the upswing may need a new macroeconomic catalyst.
Gold rose 0.7% to $4,434.02 an ounce in spot trading at 9:42 a.m. in Singapore. Silver also climbed 1% to $66.88 an ounce.
Platinum and palladium rose, while the Bloomberg Dollar Index, a measure of the U.S. currency, fell 0.1% after declining 0.2% on Monday.
