PRECIOUS-Gold jumps 2% as falling oil prices ease inflation concerns

By Ishaan Arora

March 25 (Reuters) - Gold prices climbed 2% on Wednesday, as falling oil prices eased some inflation concerns and dampened interest-rate hike bets, even as investors weighed conflicting developments in the U.S.-Israel war on Iran.

Spot gold XAU= rose 1.9% to $4,558.03 per ounce, as of 1005 GMT. The metal had hit a four-month low of $4,097.99 on Monday. U.S. gold futures GCcv1 for April delivery jumped 3.5% to $4,556.30.

Oil prices sank more than 5% on Wednesday on optimism that Washington was seeking a month-long ceasefire with Iran. USD/O/R

Iran's military, however, rejected President Donald Trump's assertion the U.S. was in negotiations to end the war which has roiled energy and financial markets, saying the U.S. is negotiating with itself.

Higher crude prices have stoked concerns of rising inflation and thereby expectations of higher interest rates. Although rising inflation typically boosts gold's appeal as a hedge, high interest rates dampen demand for non-yielding bullion.

"Money market futures are up which implies the market is expecting that there isn't a hike of central bank interest rates," said Quantitative Commodity Research analyst Peter Fertig.

"Gold does not always rally during periods of geopolitical conflicts, but a decisive shift toward tighter monetary policy has historically seen drawdowns in gold persist beyond initial corrections," UBS said in a note.

"While Federal Reserve Chair Jerome Powell offered a more cautious stance on rate cuts last week, we believe the Fed's policy easing bias remains intact."

The U.S. Federal Reserve may need to keep interest rates steady "for some time" before further cuts are warranted, Fed Governor Michael Barr said on Tuesday.

Spot silver XAG= added 2.2% to $72.76 per ounce. Spot platinum XPT= gained 1.3% to $1,959.15 and palladium XPD= was up 1.1% at $1,455.25.