Gold nears 7-year high as US-Iran tensions spike

Pedro Gonçalves
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Gold nears 7-year high as US-Iran tensions spike

The price of gold rose to its highest level in nearly seven years on Monday as escalating tensions between United Stated and Iran fuelled safe haven demand, while oil has gone past $70 a barrel.

Spot gold surged 1.5 percent to $1,579.55 per ounce in jittery trade making the metal more expensive than it has been since April 2013. Gold was on track to rise for a ninth consecutive day, which would mark its longest run of gains since January 2018.

Gold "has entered 2020 with strong momentum", Gavin Wendt, senior resource analyst at MineLife Pty in Sydney, said in an email to Bloomberg. "When you factor in ongoing uncertainty with respect to US-China trade talks and heightened security issues with Iran, gold really is a no-brainer."

We’re left waiting to see if we get an aggressive response from Iran with the whole Middle East likely feeling vulnerable"

Bullion is often seen as an alternative investment during times of political and financial uncertainty.

Though the upward momentum in Brent prices suggests some expectation that the recent escalations will lead to oil supply disruption, Goldman analysts suggested that the range of possible outcomes is too large for this to be accurately priced in.

"The range of potential scenarios is very large; spanning oil supply shocks or even oil demand destruction — which would be negative to oil prices. In contrast, history shows that under most outcomes gold will likely rally to well beyond current levels," global head of Commodities Research Jeffrey Currie and his team said in a note.

US president Donald Trump warned of a "major retaliation" if Iran hit back and also threatened sanctions against Iraq, which on Sunday called on for US and other foreign troops to leave as a backlash grows.

"We found that spikes in geopolitical tensions lead to higher gold prices when they are severe enough to cause currency debasement," Wall Street bank Goldman Sachs said, adding an escalation in US-Iranian tensions could further boost gold prices.

Oil prices are also rising as as escalating tensions in the Middle East fanned worries about disruption to global oil supplies.

Brent crude oil soared past $70 a barrel, rising more than 2% on Monday, while West Texas Intermediate crude rose 1.8% to $64.21.

Iran said on Sunday it no longer considers itself bound by the 2015 nuclear deal negotiated with the US and other world powers in the fallout from the killing of Soleimani. It added that it has to "settle a score with the US".

The US State Department said there was "heightened risk" of missile attacks near military bases and energy facilities in Saudi Arabia.

"We're left waiting to see if we get an aggressive response from Iran with the whole Middle East likely feeling vulnerable," said Deutsche Bank strategist Jim Reid.

 

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