Despite the near-total US blockade of the energy transport route through the Strait of Hormuz, fragile market optimism that the Middle East conflict could be resolved through talks has increased, prompting traders to reassess their positions, with gold prices entering a period of consolidation.

Gold fell as much as 0.6%, approaching $4,810 per ounce, erasing its earlier gains. This movement followed a surge of over 2% in the previous session, driven by reports from informed sources that the US and Iran are seeking to arrange a second round of talks within the coming days. It was reported that the US President indicated negotiations "could restart within the next two days."

On Wednesday, oil prices were volatile but remained below $100 per barrel, while the US Dollar Index was largely flat after a 0.3% decline the previous day. The recent pullback in energy prices has alleviated some of the inflationary pressures that have been weighing on gold since the outbreak of the conflict over six weeks ago.

Concerns over rising inflation have led investors to bet that central banks will keep interest rates unchanged for longer, or even hike them further—a negative development for non-yielding gold. Since the conflict began, the gold price has fallen approximately 9%, as a liquidity crunch in the early stages of the war forced investors to sell gold to cover losses elsewhere.

"The market is essentially caught between expectations for a de-escalation of the conflict and unresolved inflationary pressures," said Dilin Wu, Research Strategist at Pepperstone Group Ltd. She noted that the Federal Reserve's stance of "higher rates for longer" remains unchanged, adding, "Gold inherently faces a ceiling on its upside because it offers no yield."

Meanwhile, the situation in the Middle East remains fragile, with ongoing confrontations in the Strait of Hormuz, a critical shipping chokepoint connecting the Persian Gulf to global markets. The US is advancing a maritime blockade aimed at curbing Iranian oil exports, while Tehran is considering a temporary halt to its oil shipments.

Even if the war concludes, damage to key energy infrastructure in the Gulf region from missile and drone attacks suggests that energy supply disruptions are likely to persist.

As of 2:45 PM Singapore time, spot gold was down 0.5% at $4,816.41 per ounce. Silver fell 0.2% to $79.40 per ounce, after rallying more than 5% the previous day. Platinum and palladium were largely unchanged, and the Bloomberg Dollar Spot Index showed little movement.