Gold prices rose during Monday's Asian session as a pause in hostilities between the United States and Iran lifted market sentiment, while a sharp decline in oil prices eased inflation concerns ahead of this week's pivotal U.S. Federal Reserve meeting.
By 4:25 pm AEST (6:25 am GMT), spot gold was up 1% at US$4,094.19 an ounce.
The gains came after the United States and Iran suspended military strikes for a second consecutive night, providing markets with hope that the conflict could move towards a diplomatic resolution.
The de-escalation sent oil prices tumbling around 5%, reducing concerns over energy-driven inflation.
Iranian Foreign Ministry spokesperson Esmail Baghaei also struck a more conciliatory tone, telling a press conference on Sunday that "mediators are working and trying to prevent tension from escalating".
Lower inflation expectations helped pressure the U.S. dollar and Treasury yields, providing additional support for the non-yielding precious metal.
However, investors remained cautious, with traders reluctant to establish large positions ahead of the Federal Reserve's two-day policy meeting, which begins on Tuesday (Wednesday AEST).
The central bank will announce its interest rate decision on Wednesday (Thursday AEST).
Markets are currently pricing in a 31.5% probability of a quarter-percentage-point rate increase this week, according to the CME Group FedWatch Tool, up sharply from about 16% a week ago.
