Bullion has risen more than 6% since the start of the week as the broader market is assessing the fall in oil prices amid growing speculation that the US and Iran will begin talks to end the nearly four-week conflict.
At 9.10 am, gold prices were at $4,538, up about 0.60% since it opened in early trading on Thursday in the Asian session.
The United States has submitted a 15-point proposal to Iran to end the nearly four-week conflict. If Tehran agrees to resume talks with Washington, the diplomatic process is expected to begin as early as Thursday, either in Pakistan or Turkey.
Market sentiment immediately changed after the development, with risk appetite increasing. Oil prices came under pressure, while gold managed to pare losses and return to stability.
The US dollar continued to strengthen, supported by safe-haven demand and expectations of monetary policy. The US Dollar Index (DXY) rose nearly 0.40% to 99.55, reflecting the currency's strength against a basket of six major currencies.
The latest reports showed Iran rejected the US's initial proposal, but channels of communication remained open with further responses likely on Wednesday.
Meanwhile, diplomatic sources said Iran's approach in closed-door talks appeared more moderate than public statements, raising hopes that peace efforts could still be pursued.
Bond market movements also weighed on gold. The yield on the 10-year US Treasury fell four basis points to 4.328%, supporting gold's rise as the opportunity cost of holding non-interest-bearing assets fell.
In contrast, the yield on the two-year note rose to 3.936% after a weak auction, reflecting subdued demand. This reinforced expectations that inflationary pressures may be picking up again.
Economic data also supported the narrative as US import prices jumped 1.3% in February, the biggest increase in four years and far exceeding market expectations. The increase was driven by higher energy costs, signaling that inflationary pressures have not abated.
In addition, an S&P Global report showed that US business input costs continued to rise in March due to supply chain disruptions and higher energy prices.
Monetary policy expectations also changed as markets no longer expect a rate cut in the near future.
Instead, traders are pricing in the possibility of a small tightening of around 4 basis points in 2026, indicating that the Fed remains cautious on inflation risks.
