Gold climbs 1% as US-Iran diplomacy hopes ease inflation concerns

Gold prices rose more than 1% on Tuesday as investors assessed renewed diplomatic efforts to ease the US-Iran conflict, with softer oil prices reducing concerns over inflation and the outlook for US interest rates.

Spot gold gained 1.2% to $4,054.24 per ounce, while US gold futures for August delivery rose 1.1% to $4,059.10.

The gains came after oil prices eased from a one-month high as markets weighed reports of mediation efforts between Washington and Tehran against continued military exchanges and Yemen's Houthi movement's announcement of a naval blockade on Saudi Arabia.

A senior Iranian official told Reuters that Tehran had received a proposal from mediators for a 10-day ceasefire aimed at preserving the interim agreement and creating a pathway towards a permanent end to the conflict.

"The market appears to be finding a base around the $4,000 level and is attempting to resume its upward trend," said Ilya Spivak, head of global macro at Tastylive.

He added that developments in the Middle East were still influencing gold prices, although investors appeared to be reacting less strongly than before.

The recent escalation in the conflict had pushed oil prices to their highest level in more than a month, prompting growing expectations that persistent inflation could delay interest rate cuts or even require further monetary tightening.

Higher interest rates reduce the appeal of non-yielding assets such as gold.

Markets broadly expect the US Federal Reserve to leave interest rates unchanged at next week's meeting. However, traders are currently pricing in a 64% probability of a rate hike in September, according to the CME FedWatch Tool.

Among other precious metals, spot silver rose 2.8% to $57.99 per ounce, platinum gained 1% to $1,610.06 and palladium advanced 1.2% to $1,267.68.