Gold busts above US$1,350 as Iran tension, Fed outlook spur demand

[SINGAPORE] Gold futures climbed above US$1,350 an ounce to reach a 14-month high as rising geopolitical tensions bolster haven demand ahead of next week's Federal Reserve meeting, when policy makers may move closer to cutting US interest rates.

The metal has gained 12 of the last 13 sessions. Investors are also pouring into exchange-traded funds backed by gold, with holdings rising to the highest since late February and one buyer making the largest block trade for iShares Gold Trust ETF in almost two months. A gauge of senior gold mining companies also gained Friday, with AngloGold Ashanti leading the rally.

Gold has surged in June, shaking off a lackluster few months as investors brace for more uncertainty on global trade. Worries have escalated as the Trump administration blamed Iran for attacks on two oil tankers and US economic adviser Larry Kudlow warned that Beijing may face consequences if it refuses an invitation to restart talks. Gold also got help from bets that the Fed will lay groundwork for looser monetary policy next week.

"The news this week has been overridingly gold-friendly," said Ole Hansen, head of commodity strategy at Saxo Bank. "We have cleared the first of a few major hurdles on route to a potential US$100 extension."

Bullion may reach US$1,400 this year as investors hedge risk, according to Rhona O'Connell, head of market analysis for EMEA and Asia regions at INTL FCStone Inc. Billionaire trader Paul Tudor Jones said earlier this week that gold is his favourite pick in the next 24 months, and that if prices hit US$1,400, they will quickly move to US$1,700.

Still, investors shouldn't be too quick to attribute the recent rally purely to haven buying, as the US dollar has also been a driver, said Georgette Boele, coordinator of FX and precious metals strategy at ABN Amro Bank NV, pointing to trading over the past few hours. For example, "since the dollar started to move higher on deterioration in sentiment, the rally in gold prices has stalled."

Also, reports Friday suggested that the Fed may not need to be in any hurry to trim rates, with US stores and factories reporting a pickup in activity last month.

Gold for August delivery settled 0.1 per cent higher at US$1,344.50 an ounce on the Comex in New York. Earlier it touched US$1,362.20, the highest since April of last year. Silver futures fell. On the New York Mercantile Exchange, platinum settled lower while palladium rose.

BLOOMBERG