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Gold Rises Amid Iran Tension

Simon Constable

Heightened worries about the possibility of escalating tensions between the U.S. and Iran kept gold prices firm Monday.

Contracts for April delivery of gold were rising $2.70 to $689.40 an ounce on the Comex division of the New York Mercantile Exchange.

The bullion exchange-traded funds that hold the metal were also gaining, with streetTracks Gold Shares (GLD Quote) and iShares Comex Gold Trust (IAU Quote) both up 0.4%.

Vice President Dick Cheney indicated Sunday that the U.S. wouldn't rule out the use of force in order to prevent Tehran's firebrand president, Mahmoud Ahmadinejad, from continuing his country's suspected nuclear weapons development.

In response, Ahmadinejad snapped back that Iran has no "reverse gear" for its atomic program, which he says is only aimed at producing energy.

Such verbal fireworks helped boost interest in gold as a safe-haven investment. But one observer sees the current verbal sparring as little more than theatrics aimed at impressing each side's domestic populace.

"I think in reality the diplomats are out in force," says Bernard Hunter, director of precious metals at bullion bank ScotiaMocatta in Toronto. He points to the recent negotiated settlement in which North Korea agreed to give up its nuclear weapons as a likely template.

Elsewhere, the precious-metals team at Barclays Capital in London notes that gold continues to take direction from the greenback, which in turn should take its lead from a slew of economic data due out later in the week.

Tuesday will see new figures on existing-home sales for January, followed by a preliminary reading on fourth-quarter gross domestic product a day later. Set for release Wednesday are numbers on last month's new-home sales.

The dollar was recently buying 120.60 yen, down slighly from 121.09 late Friday. One euro was buying $1.3171, up from $1.3166 previously. The value of gold and the dollar tend to move in opposite directions.

Turning to the precious-metals patch, BMO Capital Markets dinged Meridian Gold(MDG Quote) with a downgrade to a market-perform rating from outperform, sending the stock lower by 2.2% recently.

Merrill Lynch slashed its 2007 earnings forecast for Newmont Mining(NEM Quote) to $1.55 a share from $2.35 on the basis of company guidance indicating higher expenses this year. But the stock was barely changed in midmorning action.

Prudential raised its price target on Barrick Gold(ABX Quote) to $30 a share from $28 and reiterated a neutral rating, helping boost the stock 0.6%.

As for base metals, Comex copper contracts were rising about 3 cents at $2.88 a pound, after brisk activity in Shanghai overnight.

Elsewhere, nickel was on the move, with benchmark contracts for delivery in three months surpassing $41,000 a ton on the London Metal Exchange. Dwindling inventories have traders worried about supply. LME warrants indicate that only about 2,000 tons of the metal are available for delivery.