· Gold soared as much as 2% on Wednesday to vault over the $1,600 ceiling for the first time in nearly seven years, as investors flocked to safe havens, after Iran launched retaliatory missile strikes against U.S. forces in Iraq.
Spot gold jumped 0.8% to $1,585.80 per ounce by 0250 GMT. Prices hit their highest since March 2013 at $1,610.90 earlier in the session. U.S. gold futures rallied 1% to $1,589.30.
· Iran launched a missile attack on U.S.-led forces in Iraq in the early hours of Wednesday, followed by a "second round" of attacks against U.S. bases in Iraq.
The strike by Iran comes hours after the funeral of Tehran's top military commander Qassem Soleimani whose killing in a U.S. drone strike last week has raised fears of a wider war in the Middle East.
· "Fears of uncertainty and further escalation in this military confrontation is dragging up gold prices," said Margaret Yang Yan, a market analyst at CMC Markets.
"This (Iran attacks) is definitely fuelling demand for safe havens, not just gold but also yen, while equities are being heavily sold off."
Risk aversion spiked as financial markets were thrown into disarray after the attack, sending Asian stocks tumbling and oil rocketing.
· U.S. President Donald Trump said in a tweet late on Tuesday that an assessment of casualties and damage from the strikes was under way and that he would make a statement on Wednesday morning.
Gold is considered a safe investment in times of political and economic turmoil.
CMC Markets' Yan said that technically, "gold is heavily overbought," adding that a pullback could occur if Trump resolves the issue diplomatically without "triggering a full-blown war."
· The metal's 14-day relative strength index (RSI) was around 88. An RSI above 70 indicates a commodity is overbought.
· Spot gold may break a resistance at $1,614 per ounce and rise towards the next resistance at $1,639, according to Reuters technical analyst Wang Tao.
Gold prices retrace the early-day gains from $1,611.30 to $1,591 by the press time of the initial trading session on Wednesday. The yellow metal, often considered as a risk-safety, surged to the highest since April 2013 after Iran attacked the US airbases in Baghdad.
Given the on-going talks between the key diplomats at White House, markets are all ears on any headlines concerning the US-Iran war.
It’s worth mentioning that China has been silently opposing the US strikes that killed the Iranian military personnel. The same could have negative consequences on the US-China trade deal if the US President Donald Trump notices that.
Technical Analysis
Unless declining back below September 2019 top near $1,557, gold prices can keep being strong.
· A combination of continued geopolitical risk, a weaker dollar and negative real rates would continue gold’s rally through 2020, commodity strategists anticipate.
However, there is some disagreement over the extent to which geopolitical factors will continue to be supportive for the precious metal.
As well as geopolitical risk, however, macro factors are also boosting gold’s appeal as a hedge against uncertainty. A softened dollar and a persistent negative rate environment are chief among these gold-supportive trends.
· Gold surged above $1,600 an ounce for the first time in more than six years after Iran attacked military facilities in Iraq hosting American troops in retaliation for the killing of a top general by U.S. forces. Investors are now waiting to see whether President Donald Trump responds in kind.
Bullion is off to a blistering start in 2020 driven by the fast-rising hostilities in the Middle East, which are helping the commodity build on last year’s 18% gain. While U.S. equities have risen to a series of records over the past 12 months, bullion has also advanced as the Federal Reserve eased policy, governments added gold to reserves, and holdings in exchange-traded funds rose.
Spot gold jumped as much as 2.4% to $1,611.42 an ounce, the highest since 2013, and was at $1,593.86 at 5:49 a.m. in London. Futures jumped 2.5%. On Tuesday, before the latest upheaval, holdings in bullion-backed ETFs rose to the highest since November, a Bloomberg tally showed.
Gold Support
In other markets, U.S. stock futures and Asian equities pared earlier declines, while Brent crude first rose more than 5%, then traded 1.3% higher. Among equities, gold miners Newcrest Mining Ltd. climbed as much as 5.1%, while Evolution Mining Ltd. added as much as 6.1%.
Gold may breach $1,625 this quarter as investors seek protection from equity market drawdowns and the tensions in the Middle East, Citigroup Inc. said in a Jan. 6 note. Goldman Sachs Group Inc. said earlier this week that the metal may prove a better bet than oil amid the crisis.
· Among other precious metals, palladium hit a fresh all-time peak of $2,056.01 an ounce earlier in the session on sustained supply deficit, and was last down 0.3% to $2,045.08.
The autocatalyst metal touched a fresh record high for the third consecutive session.
Silver rose 0.8% to $18.53 per ounce, after hitting its highest since early September at $18.85, while platinum edged 0.1% lower to $970.25.
Reference: Reuters, FX Street, Bloomberg
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