By: Economy Middle East

Gold prices rose on Tuesday as diplomatic efforts to ease the U.S.-Iran conflict helped slow the oil rally, reducing concerns that higher energy costs could intensify inflation and push the Federal Reserve toward further interest-rate increases.

Spot gold gained 0.92 percent to $4,049.18 per ounce as of 9:00 UAE time, while U.S. gold futures for August delivery advanced 0.94 percent to $4,047.40.

The gains placed bullion more firmly above the psychologically important $4,000 level after recent volatility driven by changing expectations for oil prices, inflation and U.S. monetary policy.

Gold rates also rose in the UAE, with 24-carat gold gaining AED3.50 to AED486.50 per gram and 22-carat gold climbing AED3.25 to AED450.50.

The price of 21-carat gold increased AED3.25 to AED432 per gram, while 18-carat gold rose AED2.75 to AED370.25. Meanwhile, 14-carat gold gained AED2 to AED288.75 per gram.

Diplomacy supports bullion

Oil prices declined on Tuesday as markets weighed reports of mediation between Washington and Tehran against renewed attacks and threats by Yemen’s Iran-aligned Houthi movement to impose a naval blockade on Saudi Arabia.

The Houthi announcement came despite indications that the United States and Iran were interested in resuming diplomacy to end the intensifying exchange of attacks, which has largely undermined the fragile interim agreement signed in June.

A senior Iranian official told Reuters that Tehran had received a proposal from mediators for a 10-day ceasefire. The initiative is intended to preserve the interim agreement and support negotiations toward a lasting settlement.

The latest escalation had pushed oil prices to their highest level in more than a month on Monday. Brent crude subsequently eased on Tuesday as the ceasefire proposal raised hopes that regional supply risks could moderate.

Oil prices matter to gold because an extended energy rally can increase consumer and business costs, complicate the inflation outlook and strengthen the case for higher interest rates.

Gold does not generate interest, meaning its relative appeal can weaken when yields on bonds and other income-producing assets rise.

Rate outlook shifts

A growing number of Federal Reserve policymakers have suggested that interest rates may need to increase if inflation remains persistently elevated. However, the central bank is widely expected to leave borrowing costs unchanged at its July 28–29 meeting.

Traders were pricing in a 64 percent probability of a rate increase in September, according to the CME FedWatch Tool.

Expectations remain sensitive to energy prices because another sharp oil increase could reverse some of the improvement recorded in recent U.S. inflation figures.

The U.S. Bureau of Labor Statistics reported that the Consumer Price Index fell 0.4 percent in June after increasing 0.5 percent in May. Annual inflation slowed to 3.5 percent from 4.2 percent, while the core index excluding food and energy was unchanged during the month and increased 2.6 percent over the year.

Energy prices fell 5.7 percent during June and gasoline prices declined 9.7 percent, accounting for much of the monthly moderation. However, energy prices remained 15.7 percent higher than a year earlier, while gasoline was up 26.7 percent annually.

Producer inflation also moderated. The Producer Price Index for final demand declined 0.3 percent in June following increases of 0.6 percent in May and 1.1 percent in April.

Energy risks remain

Final-demand energy prices fell 6.4 percent during June, while gasoline prices dropped 12 percent. Despite the monthly decline, final-demand producer prices remained 5.5 percent higher than a year earlier, indicating that underlying inflation pressures had not disappeared.

The combination of softer official inflation figures and renewed geopolitical energy risks has produced an unusually complex environment for bullion. De-escalation can reduce gold’s traditional safe-haven appeal, but lower oil prices can simultaneously support the metal by weakening expectations for higher interest rates.

The latest ceasefire proposal therefore offered gold support primarily through the interest-rate channel. If diplomacy restrains oil prices, investors may see less need for the Federal Reserve to tighten monetary policy aggressively.

The Federal Reserve’s official calendar confirms that its next two-day policy meeting will conclude on July 29. Investors will closely examine the accompanying statement and comments from Chairman Kevin Warsh for guidance on whether officials are preparing for a September increase.

Failure to secure a ceasefire could quickly reverse the market’s current direction. Continued attacks around the Gulf, restrictions on the Strait of Hormuz or disruption to Saudi Arabian exports could lift crude prices again, strengthening the dollar and Treasury yields while placing renewed pressure on non-yielding bullion.

Metals rally broadens

Other precious metals also advanced. Spot silver jumped 1.84 percent to $57.87 per ounce, outperforming gold during the session.

Platinum rose 1.13 percent to $1,619.65 per ounce, while palladium gained 1.05 percent to $1,250.00.

Gold’s longer-term demand backdrop remained supported by central-bank purchases and investor interest in physical bullion. The World Gold Council estimated that central banks bought a net 244 tonnes during the first quarter of 2026, an increase of 17 percent from the previous quarter and 3 percent from a year earlier.

Total gold demand, including over-the-counter transactions, reached 1,231 tonnes during the quarter, rising 2 percent year on year. Its value surged 74 percent to a record $193 billion as historically high prices lifted the financial value of purchases.

Bar and coin demand climbed 42 percent to 474 tonnes, supported by safe-haven buying and price momentum. Chinese demand rose 67 percent to a quarterly record of 207 tonnes, while markets including India, Japan and South Korea also recorded stronger investment.

A separate World Gold Council survey found that 89 percent of participating reserve managers expected global central-bank gold holdings to increase over the following 12 months. A record 45 percent said their own institutions planned to raise gold reserves.

That structural demand may help support bullion around $4,000, although its immediate direction will remain closely tied to U.S.-Iran diplomacy, oil prices, Treasury yields, the dollar and expectations for the Federal Reserve’s September decision.