Gold rose nearly 3 per cent on Monday as tensions in the Middle East sparked a rally in oil prices and boosted interest in the precious metal as a haven from risk, while the U.S. dollar weakened sharply against the euro.
Spot gold reached a session high of $889.55 (U.S.) an ounce, its strongest level since Oct 10, before easing to $883.70/885.70 at 1014 GMT from $866.80 in New York late on Friday.
“Over the weekend, the news out of the Middle East has not been very good and overnight we saw a lot of buying of gold, and of everything – oil is up, platinum group metals are up,” said Afshin Nabavi, head of trading at MKS Finance.
“The situation in the Middle East seems very jittery, and we will probably see some dip buying once the market comes down.”
Israeli aircraft attacked Hamas targets in the Gaza strip for a third day on Monday and militants launched a fatal rocket attack on Israel in defiance of an offensive that has killed more than 300 Palestinians.
Geopolitical tensions increases interest in bullion as a safe haven investment, and are also a prime factor driving oil prices, which also influences gold, higher.
Oil rose nearly 10 per cent to above $41 a barrel as the violence served as a reminder that political tensions could threaten Middle East crude supplies.
“Further geopolitical tension should inflate the risk premium in current precious metal prices, which should translate into increased upside potential in the near term – barring any significant decline in financial market systemic risk,” Standard Bank analyst Manqoba Madinane said.
The U.S. dollar weakened against the euro, helping to lift gold. A softer dollar typically supports gold, which is often bought as an alternative investment to the U.S. currency.
The dollar fell broadly on Monday as a grim outlook for the U.S. economy weighed.
Among other precious metals, silver tracked gold higher to $10.90/10.98 an ounce from $10.64 an ounce late on Friday. Earlier it touched a one-week high of $11.01 an ounce.
Investment demand for silver-backed exchange-traded funds remains strong.
The world's largest silver-backed ETF, the iShares Silver Trust, said its bullion holdings rose more than 30 tonnes or 0.5 per cent on Dec 26 to their highest since late October.
The New York-based trust has recorded an inflow of more than 106 tonnes of silver since the beginning of December.
Platinum group metals also climbed, with platinum touching a session high of $931 an ounce, its strongest in 10 weeks. Later it was quoted at $919.50/924.50 an ounce against $888.50.
“The white metal should benefit from further bargain hunter interest in the coming sessions, with chart resistance pegged at $938/44/74,” James Moore, an analyst at TheBullionDesk.com, said.
“However the metal still remains overshadowed by slowing auto demand and shifting market fundamentals,” he added.
Fears over falling demand from the car industry, which accounts for around half of global platinum consumption, has knocked platinum down by as much as two-thirds from the all-time high of $2,290 an ounce it reached in March.
Spot palladium was quoted at $181/186 an ounce, up nearly 5 per cent from $174.50 in New York late on Friday.
