Prices up on concern attack may lead to war

Gold prices rallied after a strike against Saudi Arabian oil facilities raised the possibility of retaliatory U.S. 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 U.S. Federal Reserve.

Gold futures jumped as much as 1.3 per cent as investors gauged the ramifications from the assault against the world’s top oil exporter, and palladium hit a fresh record. U.S. 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 U.S.-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 spectre 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 per cent to settle at US$1,511.50 an ounce at 1:31 p.m. in New York, while silver gained 2.6 per cent to US$18.026 an ounce. Spot gold advanced 1 per cent. On the New York Mercantile Exchange, platinum and palladium each rose more than 1 per cent before reversing.

He a d i n g 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 somewhat. 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 US$1,600 handle sooner rather than later.”