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Tue 17 Sep 2019 08:58 AM

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Gold rallies amid fears of escalating tensions in Gulf

Investors are seeking haven assets following the recent drone attack on Saudi Aramco facilities

Gold rallies amid fears of escalating tensions in Gulf

Gold rallied after a strike against Saudi Arabian oil facilities raised the possibility of retaliatory US military action in the Middle East.

Investors are seeking haven assets at the start of a week that will also see critical policy decisions from central banks including the Federal Reserve.

Gold futures jumped as much as 1.3 percent as investors gauged the ramifications from the assault against the world’s top oil exporter, and palladium hit a fresh record. Secretary of State Michael Pompeo blamed Iran for the disruption; that charge was rejected by Tehran. Saudi Arabia said preliminary findings show Iranian weapons were used in the attack on one of its key oil installations, stopping short of directly blaming the Islamic Republic for the strikes.

Bullion hit a six-year high this month as slowing growth and the US-China trade war drove central bank easing, with geopolitical tensions playing a secondary role aiding prices. After reducing rates in July, the Fed is poised to cut again at its Sept. 17-18 meeting.

Following the strike over the weekend, President Donald Trump pledged to help Middle East allies and said the U.S. is “locked and loaded depending on verification” that Iran staged the attack, raising the specter of a military response.

“There’s still a bit of uncertainty on the oil attacks,” Ryan McKay, a commodity strategist, at TD Securities, said by phone Monday. “I think if you get Saudi Arabia coming out and formally blaming Iran, which could happen, I think that will generate more of a safe haven bid.”

Gold futures for December delivery rose 0.8 percent to settle at $1,511.50 an ounce at 1:31 p.m. in New York, while silver gained 2.6 percent to $18.026 an ounce. Spot gold advanced 1 percent. On the New York Mercantile Exchange, platinum and palladium each rose more than 1 percent before reversing.

Heading into this week, gold holdings in exchange-traded funds had shrunk for the first week in seven on signs that relations between Beijing and Washington were at last starting to thaw. The holdings fell 17.2 tons last week, the biggest weekly loss in tonnage terms since March 1, but they’re still near the highest level since 2013. Money managers also recently reduced net-long positions, highlighting a tug-of-war among bullion investors.

“Gold and silver should be significant beneficiaries of the expected rush to safety, and the impending rounds of central bank rate cuts this week,” Jeffrey Halley, a senior market analyst at Oanda Corp., said in a note. “A continued escalation of tensions, or a move into outright hostilities in the Middle East, could see a $1,600 handle sooner rather than later.”