Gold prices regained their momentum after recording a daily high of nearly $4,600 amid the weakness of the US dollar.
However, the surge in safe assets for now remains limited due to the potential of an Iran war that has triggered inflation concerns and expectations of interest rate hikes.
At 9.20 am, gold prices were trading at $4,557, down 0.17% since it opened in early trading on Tuesday in the Asian session.
The USD value was seen declining against most major currencies as traders began to assess the possibility of progress being made in efforts to end the Iran conflict in the near term.
The fall of the US dollar index to a session low also provided positive support to the gold market as the precious metal became cheaper to buy using other currencies.
At the same time, the increase in energy prices due to the tension of the Iran war continued to raise concerns about global inflationary pressures.
The situation indirectly strengthened expectations that the US Federal Reserve (Fed) may maintain a tight monetary policy stance for longer than the market expected.
While gold is often an asset of choice for investors when geopolitical uncertainty is high, the metal does not offer interest-bearing returns.
This makes it less attractive when interest rates are high as investors tend to shift to assets that offer better returns.
According to the CME FedWatch tool, traders are now placing a 35% probability that the Fed will implement a 25 basis point interest rate hike by the end of the year.
These expectations continue to be among the key factors influencing the direction of the gold market and the US dollar in the current period.
