Iran Tension Props Up Gold

June-dated contracts add $4.40 at $673.20 an ounce.
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Gold was rising Wednesday as tensions between Iran and Britain intensified and investors turned to bullion as a safe haven.

June-dated contracts were adding $4.40 at $673.20 an ounce in New York. The June contract has now become the benchmark instrument, with its open interest, at 13.7 million ounces, exceeding that of the April-dated one, which totals 9.5 million ounces.

Open interest in the May contract was negligible.

The bullion exchange-traded funds followed the futures prices higher, with

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

each rising 0.7%.

Perhaps in an effort to offer an olive branch, Tehran indicates that it may release a female British captive who was taken prisoner last week along with 14 other U.K. military personal. But at the same time, reports indicate that the prisoners may be paraded on television despite earlier assurances that such an event wouldn't happen.

The 15 British marines and sailors had allegedly trespassed in Iran's territorial waters, a charge London denies.

At least one observer says the overall action by Iran is part of a larger ongoing campaign to deflect attention away from its alleged attempts to develop nuclear weapons.

"This is a classic low-intensity conflict," says Joe Brusuelas, chief U.S. economist at IDEAglobal in New York. "The Iranians are attempting to ratchet up the price of doing business in the West in the hopes the U.S. and its allies will take a step back, so providing additional time for developing nuclear weapons."

He explains that it's no coincidence that the hostages were taken at a time when the U.S. is engaged in war games in the Persian Gulf, potentially raising the chance of a real armed conflict.

Brusuelas doesn't see the current flap lasting much longer than the next 15 days, but he says signs that things are escalating to the next level may include reports of the prisoners being moved to more than one location within Iran, perhaps to be used as human shields.

Back in the gold patch, the

Market Vectors Gold Miners

(GDX) - Get Report

ETF, which tracks a basket of precious metals stocks, was ahead by 0.6%, with component

Miramar Mining

(MNG)

rallying almost 3%.

As for base metals, copper prices were steady at $3.06 a pound on the Comex.

European demand for the metal remains strong with refiners having to turn away orders due to zero additional capacity, says Robin Bhar, a metals strategist at UBS in London, in a research brief. That's in contrast to a slower activity in the U.S., Bhar says.

Shares of copper miners

Southern Copper

(PCU)

and

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

were dipping 0.9% and 0.6% respectively in recent action, in line with the decline in the broader stock indices.