March 25 (Reuters) - Gold rose more than 1% on Wednesday, buoyed by a drop in oil prices that eased inflation worries and tempered expectations for interest rate hikes, even as uncertainty surrounding the Middle East conflict lingered.
Spot gold was up 1.6% to $4,546.59 per ounce as of 9 a.m. EDT (1300 GMT) after hitting a four-month low on Monday. U.S. gold futures for April delivery jumped 3.3% to $4,545.40.
"Gold is seeing a technical recovery and is also being supported by optimism that hostilities involving Iran may be diminishing, which has helped ease oil prices," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
"We will need to see some further easing of inflation concerns to start thinking about the possibility of another U.S. rate cut at some point this year. Gold could get back up to $5,000 if that were to become the case."
Oil prices sank after reports the U.S. had sent Iran a 15-point proposal aimed at ending the war. Pakistan has delivered a proposal from the U.S. to Iran, and either Pakistan or Turkey could be venues for discussions to de-escalate the war, a senior Iranian official told Reuters. Meanwhile, the Pentagon is planning to send thousands of airborne troops to the Gulf to give Trump more options to order a ground assault, sources have told Reuters.
Falling oil prices help ease inflation pressures, reducing the likelihood of prolonged higher interest rates. Despite being an inflation hedge, gold loses appeal in high‑rate environments as the opportunity cost of holding a non‑yielding asset increases.
Analysts at SP Angel said in a note the recent volatility in gold prices reflects a significant rise in speculative investment flows in 2025.
"The recent pullback has seen a sharp exit of much of this capital. However, we see the recent trend of central bank reserve diversification as set to continue, with new entrants buying in 2026."
Spot gold rose 64% last year and prices hit an all-time high of $5,594.82 an ounce on January 29.
Spot silver added 2.2% to $72.83, platinum gained 0.7% to $1,948.10 and palladium steadied at $1,439.31.
Reporting by Ishaan Arora in Bengaluru; Editing by Arun Koyyur and Paul Simao
