Gold surged to the highest level in more than six years as rising tensions in the Middle East stoked demand for haven assets. Palladium also extended gains to an all-time high.
Iran’s government said it would no longer abide by any limits on its enrichment of uranium following the killing of Iranian General Qassem Soleimani, while Iraq’s parliament voted to expel US troops from the country. President Donald Trump told US lawmakers on Sunday he was prepared to strike Iran “in a disproportionate manner” if it retaliates against any US target, as the nations traded threats.
Bullion is having a roaring start to 2020 and building on the largest annual gain in almost a decade, which was driven by a weaker dollar, lower real rates and the trade war’s effects in curbing global growth. The widening fallout from the drone strike on Soleimani is threatening to escalate, denting risk sentiment and sending investors to havens, driving gold’s current rally.
Gold “has entered 2020 with strong momentum,” Gavin Wendt, senior resource analyst at MineLife Pty in Sydney, said in an email. “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.”
Spot bullion climbed as much as 2.3% to $1,588.13 an ounce, the highest level since April 2013, and traded at $1,569.90 as of 8:50 a.m. in Singapore, while futures gained as much as 2.5% to $1,590.90. Palladium jumped as much as 1.2% to $2,013.90 an ounce, a fresh record, while silver and platinum also rose.
In the wake of the US action, fears over just how far both sides are willing to escalate the situation will likely limit the extent to which haven hedges unwind, Stephen Innes, chief market strategist at AxiTrader Ltd., said in a note Sunday.
“With the S&P 500 trading near an all-time high and given the markets have been trading with strong positive risk bias, gold is by far the best hedge in this environment and should attract more buying even from those who tend not to fiddle with gold,” Innes said.
There are other factors playing into the optimism for bullion going forward. The Federal Reserve is unlikely to raise interest rates anytime within the next six months, which will in turn probably keep a cap on the US dollar — both of which are “extremely positive” for gold, said MineLife’s Wendt.
Gold miners traded higher. Newcrest Mining Ltd., Australia’s largest producer, rose as much as 3.1% in Sydney trading, while Northern Star Resources Ltd. gained as much as 1.7% and Evolution Mining Ltd. advanced as much as 4.1%
