Gold prices traded positively in Tuesday's trading following the support of the weaker US dollar, the effect of investors reacting to the potential US-Iran talks this week.
At 9 am, gold prices were at $4,838, down 0.06% since it opened in early trading Wednesday in the Asian session.
US President Donald Trump announced that Washington had been contacted by relevant parties from Iran, with a clear signal that Tehran is interested in reaching a deal.
The statement was made after the US implemented naval sanctions targeting Iranian ports, following weekend talks that failed to reach any concrete results.
Diplomatic developments, however, are still ongoing as reports indicate that the second round of talks could potentially take place in Islamabad in the near future.
Several countries including Pakistan, Turkey and Egypt are reported to be actively playing a role as mediators to bring both sides back to the negotiating table.
Uncertainty remains high as major issues such as Iran's nuclear program remain a major point of contention. This situation limits the potential for an immediate solution, but hopes for diplomacy have increased market risk appetite.
Initial effects were seen as the US Dollar Index (DXY) fell to a six-week low, reflecting reduced demand for the safe-haven currency.
Meanwhile, crude oil prices edged back slightly from recent highs. This helped ease inflation concerns in the short term and eased pressure on the Federal Reserve to maintain an aggressive monetary policy.
However, oil prices remained high overall due to supply disruptions in the Strait of Hormuz, which continued to support inflation risks.
Federal Reserve Bank of Chicago President Austan Goolsbee said inflation expectations remained stable, but warned that the potential for a rate cut in 2026 could be undermined if inflation fails to show a consistent decline.
In this environment, gold is expected to continue to move within its current range in the short term. Any price breakout will depend on the development of geopolitical negotiations and a more significant decline in oil prices.
A lower interest rate environment is typically supportive of gold as it reduces the opportunity cost of holding non-yielding assets.
On the economic front, the US Producer Price Index (PPI) for March registered slower-than-expected growth. The monthly reading rose 0.5%, lower than the 1.2% forecast and unchanged from the previous revised reading.
On an annual basis, the PPI rose 4.0%, lower than the 4.6% forecast, indicating that price pressures at the producer level are starting to show signs of moderating.
