Gold prices stabilized on Thursday after pulling back slightly from a two-week high hit in the previous session, as rising tensions in the Middle East boosted oil prices, while investors' attention turned to the Federal Reserve's meeting next week for clues on the timing of any potential interest rate hike.

Spot gold stabilized at $4,132.01 per ounce by 03:24 GMT, after hitting $4,165.87 in the previous session, the highest since July 7.

In contrast, U.S. gold futures for August delivery fell 0.4% to $4,134.60 per ounce.

"Oil prices continue to rise, increasing inflationary pressures and reinforcing expectations of a Fed rate hike, which limits gold's gains despite the dollar's decline," said Jigar Trivedi, senior research analyst at IndusInd Securities.

Oil prices rose to their highest in more than six weeks after the United States launched a new round of strikes on Iran, while Houthi militants targeted oil tankers in the Red Sea.

Meanwhile, the dollar index fell 0.1%, making gold priced in the U.S. currency cheaper for holders of other currencies.

Two-year U.S. Treasury yields rose to their highest in 17 months, as concerns grew that higher oil prices could revive inflationary pressures and increase the likelihood of U.S. interest rate hikes.

The Federal Reserve is scheduled to meet next week, with broad expectations of holding interest rates steady, although futures markets still expect at least one rate hike before the end of the year.

Market pricing, according to the CME Group's FedWatch tool, indicates a 77% probability of an interest rate hike at the September meeting.

Higher interest rates typically negatively impact gold's appeal, as it yields no interest.

In Europe, the European Central Bank is widely expected to keep interest rates unchanged at its meeting on Thursday, while leaving the door open for a possible rate hike in September.

As for other precious metals, spot silver rose 0.3% to $59.90 per ounce, platinum gained 0.7% to $1,656.24, and palladium increased 0.8% to $1,301.25 per ounce.

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