Gold rose more than 1% on Thursday as bargain ‌hunting emerged after prices fell to a one-week low, while investors kept a close watch on ​developments in the Middle East.

Spot gold gained 1% to $4,116.70 per ounce by 09:13 a.m. EDT (1312 GMT), after dropping ​to its ​lowest level since July 1 on Wednesday.

U.S. gold futures for August delivery inched up 1.1% to $4,126.60 per ounce.

"There is some bargain hunting coming in here after ⁠the drop yesterday. In the short term, the main driver for gold is the Fed," said Bob Haberkorn, senior market strategist at StoneX.

If the Fed takes a more dovish approach to interest rates, gold and silver are likely to move higher and, conversely, if ​it signals a need ‌for further rate ⁠hikes, both metals ⁠will likely come under pressure, Haberkorn added.

On the geopolitical front, Iranian armed forces launched attacks against U.S. ​military infrastructure in neighbouring Gulf states following U.S. strikes in Iran's ‌southern coastal and eastern provinces, putting strain on a ⁠three-week-old ceasefire agreement.

Higher energy prices due to the war can fuel inflationary pressures and bolster expectations of interest rate hikes by central banks. While gold is often viewed as a hedge against inflation, higher rates tend to weigh on the non-yielding metal by increasing the appeal of interest-bearing assets.

Traders are pricing in about a 64% chance of a rate hike in September, according to the CME FedWatch Tool.

The minutes from the Federal Reserve meeting in June showed rising concern about inflation, with a handful of policymakers seeing ‌grounds for a rate hike before the central bank opted ⁠to keep rates on hold.

Meanwhile, investors will closely monitor next ​week's inflation data and Fed Chair Kevin Warsh's congressional testimony for further insight into the monetary direction.

In a note on Thursday, HSBC cut its average gold price forecasts for 2026 and 2027 ​to $4,560 and $4,925, ‌respectively, from $4,864 and $5,000.

Among other metals, spot silver gained 2.4% to $59.66 per ounce, ⁠platinum rose 2.4% to $1,615, and palladium was ​up 3.4% to $1,255.61.

(Reporting by Sukanya Mitra in Bengaluru; Editing by Joe Bavier)