Gold surges to more than 6-year high on geopolitical turmoil, inflation fears

Key Points
  • Gold futures hit $1,590.90 per ounce, their highest level since April 2, 2013, when they reached $1,604.30.
  • Gold was also headed for its ninth straight day of gains.
  • The precious metal has been on a tear over the past two sessions after President Trump authorized the assassination of Iran's top general, sparking a move out of riskier assets in favor of safe havens such as gold.
An employee arranges gold bars for a photograph at the YLG Bullion International headquarters in Bangkok, Thailand.
Dario Pignatelli | Bloomberg | Getty Images

Gold surged Monday to its highest level in nearly seven years as investors fled riskier assets such as stocks amid rising tensions between Iran and the U.S.

Futures for February delivery settled up 1% at $1,568.80 per ounce and hit a high of $1,590.90 per ounce. That's the metal's highest level since April 2, 2013, when it traded at $1,604.30. Gold was also headed for its ninth straight day of gains.

"This is a bullish development, and while stretched, should lead to higher gold prices in the days/week ahead," said Mark Newton, managing member of Newton Advisors. He added that the precious metal could soon reach $1,650 to $1,700.

Gold prices have been on a tear over the past two sessions after President Donald Trump authorized the killing of Iran's top general, Qasem Soleimani, in Baghdad. On Friday, gold rallied 1.6%.

On Sunday, Iraq's parliament voted to expel foreign troops from the country, and Iran vowed to retaliate against the U.S. The Iranian regime also said Sunday it would not abide by the uranium-enrichment limits set by the 2015 nuclear deal.

Stock prices tumbled last week after Soleimani was killed. The S&P 500 and Dow Jones Industrial Average had their worst trading day in a month on Friday. The Dow added to those losses on Monday. The S&P 500 and the Nasdaq were marginally higher.

"The killing of Soleimani has heightened geopolitical risks as he was a well-known figure in Iran," wrote Keith Lerner, chief market strategist at SunTrust Private Wealth. "The Iranians may take time to calculate their next move; if they do decide to retaliate, risk assets could come under additional pressure."

Investors have turned to gold in part because the metal is seen as a hedge against market volatility and economic slowdowns, particularly if they are sparked by geopolitical tensions.

"We found that spikes in geopolitical tensions lead to higher gold prices when they are severe enough to cause currency debasement," Jeff Currie, head of commodities research at Goldman Sachs, said in a note. "This most often happens during wars or military escalations."

"Therefore, additional escalation in US-Iranian tensions could further boost gold prices," he said.

The tensions between Iran and the U.S. come at a time when the global economy is fragile. Last month, the U.S. registered its biggest contraction in manufacturing activity since June 2009.

Gold is also used as a hedge against inflation, which could rise if oil prices keep spiking. Crude prices jumped more than 3% on Friday amid worries that the U.S.-Iran conflict could disrupt the global oil supply. On Monday, oil briefly rose more than 1% before erasing those gains.

U.S. inflation has remained stagnant over the past year, leading the Federal Reserve to cut interest rates three times in 2019. The personal consumption expenditures price index, the Fed's preferred measure of inflation, rose just 1.6% in November. That's well below the Fed's preferred inflation target of 2%.

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