Gold prices edged higher on Friday, but remained on track for a weekly decline, as investors gauged hopes for a U.S.-Iran peace deal that could relieve some fears of an energy-induced inflation surge.

By 05:29 ET (09:29 GMT), spot gold had risen by 0.2% to $4,220.27 an ounce, yet was on track to dip by more than 2% over the past week. Gold futures jumped by 3.1% to $4,241.51 an ounce.

A proposed peace deal between the U.S. and Iran would include a commitment from Tehran to reopen the Strait of Hormuz and a promise from Washington to lift oil sanctions, according to reports in Iranian state media.

Iran’s Mehr news agency said that a Memorandum of Understanding (MoU) with the U.S. would also include the release of frozen Iranian funds, adding that final negotiations will focus on nuclear and economic issues. However, discussions about Iran’s missile program will be excluded, Mehr reported.

The draft requires finalization by relevant authorities, the report said.

Brent crude futures, the global oil benchmark, were last down by 4.3% at $86.47 a barrel. The contract slipped below $90 a barrel on Thursday after U.S. President Donald Trump suggested that an agreement to end the war in Iran, now in its fourth month, may be close.

While Brent oil remains well above pre-war levels, a decline may help ease some fears of an energy-driven inflation spike leading to central bank interest rate hikes. An elevated interest rate environment may not bode well for non-yielding assets like gold.

The Federal Reserve is expected to leave rates unchanged at its meeting next week, but markets anticipate that it will raise borrowing costs before the end of the year. Bets at the beginning of 2026 that the Fed would embark on a rate-cutting cycle have been all but eradicated as well.

“We are lowering our forecasts to reflect the expected delayed start of Fed rate cuts to 2027 and the resulting reduction in expected ETF gold demand in 2026. The environment for the yellow metal will likely remain challenging in the near term, but we continue to see a constructive outlook over the medium term as Fed rate cuts moderate real rates and the U.S. dollar," analysts at UBS said in a note.

This week, the European Central Bank became the first major central bank to increase rates, with officials underlining a need to corral price pressures linked to the Iran war.

Elsewhere, gold was supported by a weakening in the U.S. dollar, potentially making bullion more attractive for overseas buyers. The dollar has been bolstered throughout the war, underpinned by safe-haven demand and the belief that the U.S. economy, a major energy exporter, may be relative insulated from an energy shock.