Gold prices touched their highest level in a week due to dip buying, while traders watched developments in the Middle East for signs of the impact of energy prices on inflation.
The price of the precious metal rose by as much as 1.8% to surpass $4,080 an ounce, after ending the previous session down 0.2%.
Oil prices fell back after two days of gains, even after U.S. forces launched a new round of strikes on Iranian targets, and President Donald Trump vowed that Tehran would pay the price for killing three American soldiers.
The Houthi group’s threat to Saudi shipping in the Red Sea has led to an escalation of regional maritime risks, prompting the Saudi-led coalition supporting legitimacy in Yemen to emphasize that it has taken steps to protect ships sailing in the Red Sea.
Despite the escalation, Iran said mediators were in contact regarding proposals for how to de-escalate hostilities after more than a week of intensified clashes, and Reuters reported a proposal to halt strikes for 10 days.
The conflict, now in its fifth month, is again driving up the prices of commodities used in manufacturing and food production. Traders must weigh rising energy prices and the prospect of a Federal Reserve interest rate hike against weak US economic data. High borrowing costs are a negative factor for gold, which does not offer interest.
The $4000 level supports buying gold on dips.
Despite the recent clashes, gold is showing some signs of support at the key psychological level of $4,000 an ounce, indicating dip buying that was also seen last week.
However, Christopher Wong, an analyst at Overseas-Chinese Banking Corp., said that gold's rise may remain limited unless oil prices decline and expectations of interest rate hikes by the Federal Reserve subside.
He added that daily momentum indicators do not currently show a clear trend, and that the longer-term view is that the pace of decline should likely slow if macroeconomic conditions do not deteriorate further.
Gold rose 1.8% to $4,078.44 an ounce in spot trading at 3 p.m. in Singapore, while silver climbed 4.3% to $58.86 an ounce.
Platinum and palladium also rose, while the Bloomberg Dollar Spot Index, a measure of the performance of the US currency, fell by 0.1%.
