Gold edged higher as the dollar weakened further against the yen, making bullion priced in the US currency more competitive for many buyers. Spot gold gained as much as 0.7% to top $4,435 an ounce, wiping out a loss in the previous session. Japan’s currency was closing in on its strongest level against the dollar this year, extending a rally that began last week on growing expectations that the Bank of Japan will hike interest rates.

Bullion generally moves in an inverse pattern to the greenback. Any gains for gold were constrained, however, by inflationary risks arising from prolonged disruptions to energy flows via the Strait of Hormuz. Oil prices climbed after renewed clashes between the US and Iran, with benchmark Brent crude approaching $100 a barrel.

Traders are now pricing in a roughly 60% likelihood that the Federal Reserve will hike interest rates as early as next week. Tighter monetary policy is typically a headwind for non-yielding gold. US consumer price data due later this week is expected to provide vital clues to the central bank’s likely decision on rates at the Sept. 14-15 meeting."Higher oil prices are keeping inflation concerns alive, so this week’s US PPI and CPI will be key in determining whether yields extend higher or retrace," said Christopher Wong, strategist at Oversea-Chinese Banking Corp. Since bouncing from a floor near $4,000 in July, gold has settled in a relatively narrow range either side of $4,400, with traders repeatedly reassessing the outlook for the Fed’s monetary policy.

Despite near-term headwinds, many investors are betting that bullion will grind higher as it rediscovers its traditional value as a portfolio hedge. The re-emergence of central-bank buying and the so-called debasement trade is reminiscent of the blistering rally that carried the metal to a record high near $5,600 in January, and some of the world’s biggest money managers have rebuilt their holdings in recent weeks."We remain constructive on gold over the medium term, supported by broader investor participation alongside central-bank demand and continuing fiscal credibility and dollar-diversification concerns," Wong said. "But after the strong rebound in August, we think the next leg higher probably requires a fresh macro catalyst."Spot gold rose 0.7% to $4,434.02 an ounce at 9:42 a.m. in Singapore. Silver climbed 1% to $66.88 an ounce.

Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.1% after dropping 0.2% on Monday.