Gold powers towards 7-year peak as investors rush for safety

Gold bars at the Austrian Gold and Silver Separating Plant in Vienna, Austria.
Leonhard Foeger | Reuters

Gold prices were near a seven-year high on Monday as escalating tensions between United Stated and Iran attracted safe haven demand, while palladium rose past a key $2,000 level to hit a new record peak.

Spot gold rose 1.6% to $1,576.42 per ounce, putting it on course for its biggest one-day jump in more than four months. Earlier in the session it hit $1,579.72, its highest since April 2013. U.S. gold futures gained 1.7% to $1,578.70.

"It is more of anticipation of what could happen or what might happen (between U.S. and Iran), which is now reflected in the market. Basically the uncertainty that we don't know what is going to happen," said Julius Baer analyst Carsten Menke. "If this issue is something which remains in the political area, like back and forth accusations and threats, then we should not have a lasting impact on gold."

Bullion is often seen as an alternative investment during times of political and financial uncertainty. Gold prices have gained about 3% since the U.S. killing of a top Iranian military commander on Friday that has heightened fears of a wider Middle East conflict, prompting investors to flee from risky assets.

Equity markets gave up their New Year gains on the intense Middle East tensions, while safe-haven yen surged to a three-month high against the U.S. dollar - making dollar denominated gold cheaper for investors holding other currencies.

U.S. President Donald Trump warned of a "major retaliation" if Iran hit back and also threatened sanctions against Iraq, which on Sunday called on for U.S. and other foreign troops to leave as a backlash grows.

"We found that spikes in geopolitical tensions lead to higher gold prices when they are severe enough to cause currency debasement," Wall Street bank Goldman Sachs said, adding an escalation in U.S.-Iranian tensions could further boost gold prices.

Spot palladium hit an all-time peak of $2,024.59 an ounce earlier, and was last up 1.6% at $2,019.41.

"The (palladium) market continues to tighten and that's what is pushing the market up," said ING analyst Warren Patterson, adding, "The key risk moving forward is how sustainable this price move is."

Palladium, used mainly in catalytic converters in vehicles, is facing a sustained supply deficit and the metal rose about 54% in 2019.

Following gold's lead, silver gained 2% to $18.39 an ounce, after touching a more than three month high of $18.50, while platinum advanced 0.6% to $986.16.