Gold prices climbed 2% 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 rose 1.9% to $4,558.03 per ounce, as of 6:05 a.m. EST. U.S. gold futures for April delivery jumped 3.5% to $4,556.30.

The metal had hit a four-month low of $4,097.99 on Monday.

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

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.

Gold tumbled to its lowest level of 2026 on Monday, March 23, as a powerful mix of macroeconomic forces overwhelmed its traditional safe-haven appeal.

Even with President Trump announcing a temporary pause on planned strikes against Iran, investors focused instead on the inflationary fallout from the conflict — particularly disruptions tied to Iran’s blockade of the Strait of Hormuz.

The resulting surge in energy prices fueled expectations that inflation would remain elevated, reducing the likelihood of near-term Federal Reserve rate cuts and, in some cases, raising the possibility of further tightening

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.

Investors have cut bets on U.S. Fed rate hikes by December to around 16% from 25% on Friday, according to CME Group's FedWatch.

"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 added 2.2% to $72.76 per ounce. Spot platinum gained 1.3% to $1,959.15 and palladium was up 1.1% at $1,455.25.