Gold prices rose on Tuesday, with spot bullion climbing as much as 1.8 per cent to trade above $4,078 per ounce in Asian hours, as investors assessed diplomatic efforts to de-escalate the five-month-old US-Iran conflict. The rally came after oil prices softened, pausing a surge that had pushed crude to more than a one-month high a day earlier.

Iran’s foreign ministry said mediators had presented “proposals” to Tehran, signalling that diplomatic channels remained open, while Reuters reported a proposal for a 10-day cessation of attacks. The overtures were weighed against a fresh exchange of strikes: US forces launched a new round of attacks on Iranian targets, President Donald Trump vowed that Tehran would “pay” for the deaths of three American soldiers, and Yemen’s Iran-backed Houthi rebels threatened a naval blockade of Saudi Arabia.

The easing of oil prices reduced the immediate inflation risks that had been stoking expectations of tighter monetary policy. High interest rates raise the opportunity cost of holding non-yielding bullion, and traders are currently pricing a 64 per cent chance of a Federal Reserve rate hike in September, according to the CME FedWatch Tool. Ilya Spivak, head of global macro at Tastylive, said gold appeared to be “trying to find a base somewhere around this ($4,000) level and is going to try to re-engage the upside from there.”

Other precious metals also gained, with spot silver up more than 2 per cent and platinum and palladium advancing. The dollar index was little changed near a one-week high. The diplomatic track remains fragile, with no details on the mediators’ proposals and both sides continuing military actions, leaving commodity and rate markets sensitive to any shift in the conflict’s trajectory.