Gold holds steady near six-year high

Gold held near the highest level in more than six years even as risk appetite crept back into global markets, with investors on alert for Iran’s next move in the showdown with the US

Gold, which climbed 2.4% over the past two days to approach $1,600/oz, was little changed on Tuesday as US equity futures edged higher and stocks in Europe and Asia advanced.

Bullion investors have been in thrall to developments in the Middle East after a US drone strike killed a powerful Iranian general. The Islamic Republic is assessing 13 scenarios to respond and even the weakest of those options would be a “historic nightmare” for the US, the head of Iran’s national security council was cited as saying by the semi-official Fars news agency.

“Elevated geopolitical risks across the heart of the Middle East should support a stronger gold price environment this winter,” Citigroup analysts including Tracy Liao wrote in a note. The bank cautioned that it is difficult to trade gold purely from the angle of heightened military tensions, but noted there are “bullish fundamental tailwinds” in place.

Spot prices nudged higher to $1,567.09/oz at 8.12am in New York. On Monday, gold hit $1,588.13, the highest since April 2013.

History suggests that gains driven by geopolitical tensions alone may be short-lived, Macquarie Group strategists including Marcus Garvey said in a report.

“To illustrate this with the examples of Gulf War 1, the World Trade Center attack of 9/11 and last year’s strike on Saudi Aramco’s Abqaiq facility, gold prices initially jumped higher but were ultimately unable to sustain their newly elevated level,” they said.

Still, there are several other factors in place that are supportive for gold prices, Credit Suisse analysts including Fahad Tariq said in a note this week. Those include a weaker dollar, dovish central bank policies and uncertainty over a more comprehensive deal between Washington and Beijing.

In other precious metals, palladium hit a fresh record, with spot prices reaching $2,048.15 an ounce on Tuesday. Platinum also gained, while silver edged lower.

Bloomberg