PRECIOUS-Gold climbs 1% as US-Iran truce pressures oil; all eyes on Fed meeting

Updates prices as of 1200 GMT

By Sukanya Mitra

July 27 (Reuters) - Gold prices climbed on Monday as a pause in strikes between the United States and Iranian forces dragged crude oil prices lower, helping ease inflation concerns and worries about the risk of higher interest rates in a week when Fed policymakers are due to meet.

Spot gold XAU= gained 1% to $4,092.87 per ounce by 1200 GMT, while U.S. gold futures GCcv1 for August delivery rose 0.7% to $4,098.00.

"Precious metals have started the week on the front foot, helped by a pause in Middle East hostilities. Oil has slumped and both the dollar and U.S. Treasury yields have eased," said independent analyst Ross Norman.

The U.S. dollar index /.DXY dropped 0.2%, making greenback-priced bullion more affordable for buyers overseas. USD/

On Sunday, Iran said it would halt its own attacks as long as the United States does the same, a senior Iranian official told Reuters. Washington paused its bombing campaign after President Donald Trump's advisers told him they were running out of targets and expressed worries about depleting the U.S. arsenal.

Oil prices tumbled more than 5% on Monday, raising hopes of a diplomatic solution to de-escalate the conflict surrounding the Strait of Hormuz. O/R

Elevated energy prices bolster inflation concerns and raise expectations of higher-for-longer interest rates. While gold is seen as a hedge against inflation, the yellow metal suffers in a high interest rate environment due to its non-yielding characteristic.

Investors are now eyeing the Fed's interest rate decision meeting on Wednesday, with about 34% of market participants anticipating a rate hike.

"Gold is flashing cautiously positive signals: one eye on Iran, the other on the Fed. If Warsh pushes back against the roughly two hikes now embedded in the curve, that could be quite supportive for gold," Norman said.

Traders are pricing in about a 79% chance of an interest rate hike in September, according to the CME FedWatch Tool.FEDWATCH

Elsewhere, spot silver XAG= rose 1.5% to $59.05 per ounce, platinum XPT= gained 2.7% to $1,631.22, and palladium XPD= climbed 2.7% to $1,277.47.

(Reporting by Sukanya Mitra in Bengaluru; Editing by Ronojoy Mazumdar, Joe Bavier and Joyjeet Das)

((sukanya.mitra@thomsonreuters.com;))