Spot gold was down 0.9% to $4,777.77 per ounce at 1253 GMT. U.S. gold futures for June delivery fell 0.7% to $4,797.90.
The U.S. dollar edged higher, making greenback-priced bullion more expensive for other currency holders. “Markets are hesitant about a potential deal between the U.S. and Iran, given the weekend’s developments and mixed rhetoric. This is keeping bulls in check for now and may confine gold to a tight range until certainty arrives,” said Zain Vawda, analyst at MarketPulse by OANDA.
Gold could trade between $4,750 and $4,850, with any move above this hinging on Middle East announcements, he added.
The U.S. expressed confidence that peace talks with Iran would go ahead in Pakistan and a senior Iranian official said Tehran was considering joining, even as the country’s foreign ministry condemned the U.S. for what it called an attack on the Iranian commercial vessel Touska at the weekend.
Oil prices fell on expectations that peace talks will lead to more supply flowing from the key Gulf producing region.
Inflation fears have risen with oil prices, which have surged since the U.S. and Israel launched strikes on Iran on February 28. Although gold is seen as an inflation hedge, demand for the non-yielding asset suffers when interest rates are high.