Gold prices increased sharply on Tuesday, with spot gold climbing 1.5% to $4,067.55 per ounce as middle East diplomacy suggested a potential easing of oil-driven inflation risks. Futures also rose, up 1.4% to $4,072.45.

Ceasefire Talks and Oil Market Risks

A senior Iranian official informed Reuters that mediators proposed a 10-day ceasefire to maintain an interim agreement and enable broader negotiations. Despite this, ongoing strikes between involved parties continue, fueling concerns about the Strait of Hormuz, a key route for nearly 20% of global oil and liquefied natural gas shipments prior to the February outbreak of conflict.

Further tensions stem from Iran-backed Houthis in Yemen threatening to block Saudi vessels, which could expand the conflict front.

Federal Reserve Rate Outlook

Investors worry that hindered oil supplies may push inflation higher, potentially prompting central banks to tighten monetary policy. The Federal Reserve is widely expected to hold interest rates steady next week; however, CME FedWatch data shows a 54% probability of a quarter-point hike in September.

Higher interest rates usually weigh on gold since it does not yield dividends or interest, increasing the cost of holding the asset as borrowing expenses rise. Dominic Schnider, Head of Global FX and Commodity at UBS Global Wealth Management, noted that expectations of higher real rates have pressured gold prices, while investment flows remain uneven.

Market Trends and Central Bank Activity

Since the Iran war began in late February, gold has declined 22%, surprising some investors who typically view geopolitical crises as a positive for gold. The market appears to be pricing in Fed rate hikes targeting oil-driven inflation, reducing demand for non-yielding assets like gold.

Despite this decline, gold's 12-month gain is still 21%, modestly outperforming the S&P 500. Central banks continue to acquire gold robustly. Poland led net purchases in the first half of 2026, while Turkey sold 81 metric tons valued at about $10.6 billion during the same period.

New Federal Reserve Chair Kevin Warsh has not provided clear guidance on future policy. His task forces on inflation and AI productivity are expected to report by year-end, leaving uncertainty for markets.

Precise market reactions put spot gold at a 1.5% gain during Tuesday’s session.