PRECIOUS-Gold extends gains as US-Iran peace hopes ease inflation concerns

By Ashitha Shivaprasad

May 7 (Reuters) - Gold rose for a third consecutive session on Thursday, aided by increasing optimism that a peace agreement will be achieved between the U.S. and Iran, which helped ease worries about inflation and the likelihood of prolonged higher interest rates.

Spot gold XAU= was up 1% to $4,733.59 per ounce, as of 11.50 a.m. EDT (1550 GMT), after hitting a two-week peak earlier in the session.

U.S. gold futures GCcv1 rose 1.1% to $4,744.00.

"If the ceasefire holds, and we can put this war behind us, and get back to business with the Strait being open, I can see gold push to $5,000/oz," Bob Haberkorn, senior market strategist at RJO Futures, said.

"The market is just watching the situation in the Middle East, as well as the direction the U.S. Federal Reserve is looking at."

The United States and Iran are edging toward a temporary agreement to halt their war, sources and officials said, with Tehran reviewing a proposal that would stop the fighting but leave the most contentious issues unresolved.

Oil prices extended losses on hope that a deal could bring a gradual reopening of the Strait of Hormuz. O/R

Rising energy costs tend to drive inflation. In such a scenario, policymakers may be less inclined to cut interest rates to contain price pressures. Despite its role as an inflation hedge, gold becomes less attractive in a higher-rate environment because it offers no yield.

There is a path to above $5,200/oz for gold once the conflict and oil-driven inflation pressures fade, TD Securities said in a note.

"A later pivot toward the Fed’s maximum employment mandate, lower yields and a softer U.S. dollar, plus renewed investor and central-bank demand, could reignite the bull trend," it added.

Markets await the monthly U.S. employment report on Friday to assess how the Fed will move forward with monetary policy this year.

Elsewhere, China's central bank loaded up on gold for an 18th straight month in April, data showed.

Among other metals, spot silver XAG= rose 4.5% to $80.82, after hitting highest since April 17.

Platinum XPT= lost 0.6% at $2,047.79, and palladium XPD= fell 1.5% to $1,514.08.