Gold Prices Near 7-Year High As U.S.-Iran Tensions Trigger Safe-Haven Buying; Oil Spike Stokes Inflation Concern

Rising political and military tensions in the Gulf region, as well as the prospect of faster inflation on the back of a sustain rally in global crude prices, has gold trading at the highest levels in nearly seven years.
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Gold prices rose to the highest levels in nearly seven years Monday as investors drove cash into safe-haven assets around the world amid rising military and political tensions in the Gulf region followings last week's killing of a key Iranian military commander in Iraq.

With risk markets retreating following the killing of Major General Qassem Soleimani -- which was directly ordered by President Donald Trump -- last Friday in Baghdad, safe-have assets such as gold, U.S. Treasury bonds and other precious metals have been rising sharply. Iran's decision to roll back some of its commitments on uranium enrichment linked to the 2015 non-proliferation treaty, as well as Trump's warning that any reprisal attacks from Tehran could be me with a "disproportionate" response, has only added to the upward pressure on gold, which has gained nearly 4% over the past week.

“Momentum is really strong right now, and there’s an overwhelming sense of bullishness in the market which always makes me a bit nervous, at least in the short term,” said Saxo Bank’s head of commodity strategy Ole Hansen. “I would be a little bit reluctant to call for aggressive buying at this stage unless we see any forceful escalation from either side.”

“One of the other reasons we’re seeing gold going up is that we are seeing the potential for an increase in inflation,” Hansen added. “The inflation theme was already starting to brew late last year, but with the spike we’re seeing in oil prices, that theme could start to become more forceful.”

Spot gold prices were last seen 1.60% higher from Friday's close and trading at $1,577.5 per ounce, just 12 cents from the earlier session peak and the highest since April 2013.

Brent crude futures contracts for February delivery, the global benchmark for crude prices around the world, have risen more than 6% since Friday, and were last marked $1.02 higher from Friday's closing levels and changing hands at a four-month high of $69.62 per barrel.

WTI contracts for February delivery, which are more tightly linked to U.S. gasoline prices, were seen 81 cents higher at $63.86 per barrel in early European trading.

U.S. pump-gas prices, in fact, have risen nearly 2.4% since Christmas Eve as global crude markets closed their biggest annual increase since 2016 last year, driven by improving U.S.-China trade prospects, a carefully brokered agreement on production cuts between OPEC cartel members and key allies such as Russia, and ongoing military and political tensions in the Gulf region.