Rewrites for AMERS morning session

By Noel John

July 21 (Reuters) - Gold rose more than 1% on Tuesday on hopes of a diplomatic breakthrough between the U.S. and Iran, which could ease energy prices and temper expectations of a hawkish Federal Reserve.

Spot gold XAU= gained 1.1% to $4,049.79 per ounce by 09:41 a.m. EDT (1341 GMT), while U.S gold futures GCcv1 for August delivery rose 1% to $4,054.40.

"Commodities are higher across the board on expectations that a cease-fire in the Middle East could be in the works," said Marex analyst Edward Meir.

Gold is also drawing support from technical buying after breaking above a short-term downtrend in place since July 6 and prices are likely to remain range-bound in the near term, he added.

A senior Iranian official told Reuters on Monday that Tehran had received a proposal from mediators for a 10-day ceasefire in efforts to salvage the interim deal.

Elevated oil prices due to Gulf supply disruptions have been weighing on gold prices as it stokes inflation fears and add to bets of higher-for-longer interest rates.

While gold is seen as a long-term hedge against inflation, high interest rates raise the opportunity cost of holding the non-yielding metal.

Investors now await the U.S. Federal Reserve's interest rate decision and Chair Kevin Warsh's comments following the central bank's two-day policy meeting next week.

Traders are pricing in about a 64% chance of a rate hike in September, according to the CME FedWatch Tool. FEDWATCH/

"The psychologically significant $4,000 mark appears to be holding firm on the gold market... However, interest rate concerns in the U.S. are likely to put the brakes on a stronger recovery," Commerzbank said in a note.

Among other metals, spot silver XAG= rose 3.5% to $58.41 per ounce, platinum XPT= gained 1.3% at $1,614.58, and palladium XPD= was up 1.1% at $1,266.54.