Gold hovers near seven-week high on easing rate hike concerns

"Gold tries to hold onto its recent gains today amid growing optimism around the Strait of Hormuz. Hopes for a diplomatic breakthrough that restores oil flows are easing inflationary fears and paring back aggressive Fed tightening bets," said Nikos Tzabouras, senior market analyst at Jefferies-owned Tradu.com.

A proposed deal between Iran and Oman to help end five months of war between Iran and the United States would give Tehran control over ships entering the Gulf through the Strait of Hormuz, a senior Iranian source and two regional officials told Reuters.

Market expectations for a September U.S. rate hike have eased to 55% from 67% two days earlier. FEDWATCH

While gold is typically seen as a hedge against inflation, it loses its appeal as a non-yielding asset in high-interest-rate environments.

Federal Reserve Bank of San Francisco President Mary Daly said she was "completely supportive" of the decision last week to hold interest rates steady as the central bank gathers more data about how it should respond to inflation that is well above its 2% target.