Gold prices rose to their highest level in two weeks on Wednesday, supported by technical buying, as investors assessed the widening conflict in the Middle East and awaited the Federal Reserve (the US central bank) meeting next week for clues on the path of interest rates.

Spot gold rose 1.6 percent to $4,139.64 an ounce by 03:07 GMT, after earlier in the session touching its highest level since July 7. US gold futures for August delivery also rose 1.7 percent to $4,144.20 an ounce.

The escalation of tensions in the Middle East contributed to higher oil prices and fueled inflation concerns, reinforcing expectations of tighter monetary policy, which had driven gold last week to record its biggest weekly loss since early June.

Tim Waterer, chief market analyst at KCM Trade, said: 'Buyers have returned to the market seeking attractive buying opportunities after the recent pullback, and hopes for diplomatic progress between the US and Iran are also supporting price movements.'

A senior Iranian official told Reuters on Monday that Tehran had received a proposal from mediators for a 10-day ceasefire, in an attempt to salvage the temporary ceasefire agreement signed in June. Iranian Interior Minister Eskandar Momeni also visited Pakistan, which acts as a mediator, and asked Islamabad to continue its efforts.

In terms of monetary policy, a Reuters poll showed that the Federal Reserve will keep its key interest rate unchanged until the end of 2026. A majority of respondents in a separate question on the likelihood of a rate hike this year described the probability as 'high,' a shift from last month when most considered it 'low.'

Higher interest rates for a longer period increase the opportunity cost of holding gold, which yields no return.

Among other precious metals, spot silver rose 1.9 percent to $59.87 an ounce, after earlier hitting its highest level since July 10.

Platinum rose 2.4 percent to $1,667.22 an ounce, and palladium rose 3.0 percent to $1,320.75 an ounce.