Gold prices hit their highest level since 2013 on Monday as the crisis deepened over the US assassination of Iran’s most senior military leader Qasem Soleimani.
Gold futures (GC=F) were treading water in early trading on Tuesday in London, at about $1,568 (£1,193) per ounce.
Fears are growing of Iranian retaliation and continued escalation of tensions by US president Donald Trump after the drone strike in Baghdad, and of threats to armed forces and civilians from the US and its allies in Iraq.
US officials have denied claims American forces could be pulled out of Iraq, while the UK government is reported to be making contingency evacuation plans.
"There's no escalation in the geopolitical situation, but the tensions have not receded completely and because of that after a good correction in gold, prices have bounced," Jigar Trivedi, a commodities analyst at Anand Rathi Shares & Stock Brokers in Mumbai, told Reuters.
Gold is widely seen as a safe haven amid heightened political and economic uncertainty as it is seen to keep its value more reliably than equities.
"If things de-escalate then gold will hit lower quite quickly. We would see it go down below $1,500 [£1,141]," a senior market analyst for the Asia-Pacific region at OANDA, also told Reuters.
Soleimani's body was transported to his hometown of Kerman for his burial on Tuesday, after thousands of Iranians took to the streets in anger and mourning over the weekend.
Hossein Salami, the leader of the Iranian Revolutionary Guards, told a crowd of thousands in Kerman that Iran would take "a hard and definitive revenge."
Iran's supreme leader Ayatollah Ali Khamenei has also said Iran's response would match the scale of Soleimani's killing, but be at a time and place of Tehran's choosing, according to Reuters.