* Oil prices climb over 2%

* Iran issues directive on country's near-weapons-grade

uranium

* Traders now see 58% chance of at least one rate hike by

2026-end

(Recasts for U.S. market open)

By Ishaan Arora

May 21 (Reuters) - Gold prices fell 1% on Thursday as

climbing oil prices heightened inflation worries, boosting bets

for U.S. rate hikes and lifting Treasury yields and the dollar,

which added more pressure on bullion.

Spot gold was down 1% at $4,500.07 per ounce as of

10:17 a.m. ET (1417 GMT). On Wednesday, bullion rose more than

1% in U.S. trading hours after having hit its lowest level since

March 30.

U.S. gold futures for June delivery lost 0.7% at

$4,502.90.

Oil prices rose over 2% after Reuters reported that Iran's

Supreme Leader issued a directive that the country's

near-weapons-grade uranium should not be sent abroad.

"Essentially, it's all still about negotiation between Iran

and the U.S. and in that context, we have seen a bit of

uncertainty if a deal can be reached or not, with that, oil

prices are increasingly pressuring gold," said UBS analyst

Giovanni Staunovo.

Ayatollah Mojtaba Khamenei's order could further frustrate

U.S. President Donald Trump and complicate talks on ending the

U.S.-Israeli war on Iran.

The yellow metal has fallen more than 15% since the war

started in late February, which has disrupted maritime traffic

through the Strait of Hormuz, lifting energy prices and stoking

inflation concerns.

The dollar rose, making greenback-priced bullion more

expensive for other currency-holders, while the U.S. 10-year

Treasury bond yield resumed its climb, increasing the

opportunity cost of holding non-yielding bullion.

"Increasing oil prices, which push inflation higher, are

putting pressure on central banks to keep rates unchanged or

potentially even increase them. This, thus remains a headwind

for gold in the near term," Staunovo added.

Despite being an inflation hedge, gold struggles during

periods of elevated interest rates.

Traders now see a 58% chance of at least one 25-basis-point

interest rate hike by the U.S. Federal Reserve this year,

compared with 48% a day earlier, as per CME's FedWatch Tool.

Spot silver was down 1.1% at $74.98 per ounce,

platinum lost 1.4% to $1,923.27 and palladium fell

1.3% to $1,352.38.