PRECIOUS-Gold hits three-week low with US-Iran talks, central bank decisions in focus

By Noel John

April 28 (Reuters) - Gold fell to a three-week low on Tuesday, as elevated oil prices kept inflation concerns high, while investors awaited key central bank decisions this week to see if the Middle East conflict has altered the interest rate outlook.

Spot gold XAU= was down 1.1% at $4,628.63 per ounce, as of 0746 GMT, its lowest level since April 7. U.S. gold futures GCcv1 for June delivery fell 1.1% to $4,642.90.

U.S. President Donald Trump is unhappy with the latest Iranian proposal on resolving the two-month war, a U.S. official said, dampening hopes for a resolution to the conflict that has disrupted energy supplies, fuelled inflation, and killed thousands.

"Geopolitical headlines are still the main driver (of gold prices). In the event of a deal (between the U.S. and Iran) or an interim deal, the dollar should weaken, and gold will likely break out to the upside," said Edward Meir, analyst at Marex.

The dollar gained, and oil prices rose above $111 a barrel, as the crucial Strait of Hormuz waterway remained largely shut. USD/ O/R

Higher crude oil prices can stoke inflation by raising transportation and production costs, increasing the likelihood of higher interest rates. While gold is considered an inflation hedge, high interest rates make yield-bearing assets more attractive, weighing on its appeal.

The Bank of Japan kept interest rates steady on Tuesday but three of its nine-member board proposed hiking borrowing costs, signalling policymakers' concerns over inflationary pressures from the Middle East conflict.

The U.S. Federal Reserve is also widely expected to hold interest rates steady at the end of its two-day meeting on Wednesday.

Investors will be focusing on other central bank decisions this week, including those from the European Central Bank, the Bank of England and the Bank of Canada.

Spot silver XAG= fell 2.9% to $73.28 per ounce, platinum XPT= lost 1.6% to $1,951.33, and palladium XPD= was down 1.6% at $1,453.38.