During Thursday's Asian trading session, spot gold extended its upward trajectory, according to Bloomberg. Despite rising inflation risks linked to the Middle East conflict, gold prices have climbed as the Federal Reserve maintained its current interest rate stance. This development calmed some bullish gold investors who had previously been concerned about a potential surprise rate hike.

Spot gold rose by 0.8% to reach $4,100 per ounce, adding to a 0.9% gain recorded on Wednesday.

The Federal Reserve voted 9-3 to keep rates unchanged on Wednesday. However, this divided vote indicated that a growing number of policymakers believe higher borrowing costs may be necessary in the future to combat renewed price pressures. Typically, higher interest rates weigh on gold, as the metal does not yield interest.

Federal Reserve Chair Kevin Warsh emphasized that the latest decision does not signify a lack of readiness to act. He stated that if inflation remains persistently high, interest rates could become part of the solution, though he cautioned it would not be the only tool deployed.

Since the outbreak of war between the US and Iran over five months ago, gold prices have fallen more than 20%. Soaring energy prices have exacerbated inflationary pressures, raising the likelihood that interest rates will remain elevated for an extended period. Still, gold has held near the key support level of $4,000 per ounce since late June, bolstered by bargain hunting from investors.

Nicky Shiels, Head of Precious Metals Research and Strategy at MKS PAMP SA, noted that in the wake of the Fed's decision, asset classes that were heavily shorted or out of favor—such as precious metals and bonds—could experience a rebound. In a report, she observed that the market is cautiously building confidence that this could signal a "green light" for a substantial influx of capital into gold. She further identified $4,200 per ounce as a "critical inflection point" for the metal.

Simultaneously, tensions in the Middle East have escalated further. US President Donald Trump announced that the US would retaliate for a recent attack on American forces in Jordan by Iran. Additionally, the US and Saudi Arabia have conducted strikes against Iran-backed militant groups in Iraq. This follows reports from Riyadh that it intercepted drones from Iraqi armed groups targeting Saudi oil facilities.

As a result, international oil prices stabilized on Thursday, following their largest single-day gain in over two weeks.