Gold spikes as investors brace for Iran response to US strike

[SINGAPORE] Gold jumped to the highest in almost four months after a US airstrike killed one of Iran's most powerful generals, ratcheting up tensions in the Middle East and spurring demand for haven assets.

The strike in Baghdad ordered by US President Donald Trump killed Qassem Soleimani, the Iranian general who led the Revolutionary Guards' Quds force, the Defense Department said. Iran's supreme leader, Ayatollah Ali Khamenei, has vowed that "severe retaliation" awaits those who killed the commander.

Bullion is already building on its stellar 2019 rally as the dollar weakens, and the return of geopolitical concerns to the foreground will further aid prices. Gold clinched its biggest annual gain since 2010 as looser monetary policy, unrest in regions from Chile to Hong Kong and buying sprees from key central banks and exchange-traded funds supported the haven.

"While this may be the knee-jerk reaction we are seeing at present, the likelihood of further reactions cannot be ruled out, which may keep gold supported in the near term," Pan Jingyi, market strategist at IG Asia Pte in Singapore, said in an email.

Spot bullion rose as much as 1 per cent to US$1,543.93 an ounce, the highest since Sept 5, and traded at US$1,541.77 at 2.03pm in Singapore. Prices are up 2.1 per cent this week. Futures on the Comex surged as much as 1.2 per cent.

ATTITUDE SHIFT

The rally comes even as US-China trade tensions ebb and US equities post fresh records. Last year's advance marked a positive shift in investor attitude towards gold, according to RBC Capital Markets, which predicted further gains this year and next. Goldman Sachs Group Inc, Citigroup Inc and UBS Group AG have said they're looking for US$1,600 an ounce.

January is historically gold's best month, according to Bloomberg Intelligence. If prices match the average January advance of 2.7 per cent over the past 20 years, they'll surpass the six-year high reached in September. The metal will approach US$1,600 by February if it matches the 5.2 per cent average increase of the past five years.

Next up for investors is the latest reading on the health of the world's biggest economy, with US ISM manufacturing data and minutes from the Federal Reserve's last policy-setting meeting due later on Friday.

In other precious metals, silver climbed 1.1 per cent, platinum advanced 0.5 per cent and palladium rose 0.2 per cent.

BLOOMBERG