[SINGAPORE] Gold added to an overnight surge in prices on Tuesday, as escalating geopolitical tensions in the Middle East and a global stock market rout triggered safe-haven bids for the metal.
Spot gold had risen 0.2 per cent to US$1,075.95 an ounce by 0044 GMT. On Monday, the metal jumped as much as 2.2 per cent to a four-week high of US$1,083.30, before ending the day up 1.3 per cent.
"The Middle East tensions will continue to support gold for the time being," said a trader in Hong Kong. "If the decline in stock markets extends to another session, that may also help." Bullion, often seen as a alternative investment during times of geopolitical and financial uncertainty, is benefiting from a shift away from risk along with the Japanese yen and US bonds.
Saudi Arabia's execution of a Shi'ite Muslim cleric over the weekend provoked protests among Shi'ites across the region. Iranian protesters stormed the Saudi embassy in Tehran, setting fires and causing damage, prompting Riyadh to cut ties and inflaming an already heated rivalry.
Saudi Arabia also said it would end air traffic and trade links with Tehran.
A 7-per cent slide in Chinese shares on Monday sparked by weak economic data rekindled worries over global growth on the first day of trading in 2016, and sent European and US stocks diving.
Chinese shares opened 3 per cent lower on Tuesday but rebounded later to trade about 1 per cent higher.
Safe-haven rallies tend to be short-lived and gold could see the focus shift back to US monetary policy soon.
Gold slid 10 per cent last year on fears higher US rates would lower demand for the non-interest-paying asset, while boosting the dollar. A stronger greenback makes dollar-denominated gold costlier for holders of other currencies.
San Francisco Federal Reserve President John Williams said Monday he is unfazed by the weak economic data out of China that has spooked Wall Street, and sees three to five US interest rate hikes this year as reasonable given the strength of the US economy.
The Hong Kong-based trader warned that the rally could lose steam soon.
"The fundamentals for gold haven't changed, with the dollar expected to do well amidst higher rates," the trader said.
Investor sentiment remains bearish. Hedge funds and money managers boosted their net short position in COMEX gold to a fresh record in the week to Dec 29, US government data showed on Monday.