Investing.com - The rally in gold prices continued for a second week on Monday as tensions between the U.S. and Iran supported safe-haven demand, adding to the momentum generated by hopes for interest rate cuts from the Federal Reserve.
Spot gold rose as far as $1,411.21, its highest since September 2013, overnight before retracing slightly to $1408.26 by 8:20 AM ET (12:20 GMT), a gain of 0.6% on the day.
Gold futures for August delivery on the Comex division of the New York Mercantile Exchange, gained $12.15, or 0.9%, to $1,412.25 a troy ounce, its highest level since July 2014.
Secretary of State Mike Pompeo warned that the U.S. would announce “significant” sanctions Monday and said he would seek to build a “global coalition” to deal with Iran as he meets for talks with Saudi Arabia and the United Arab Emirates.
The sanctions will effectively be the U.S.'s response to Iran’s shooting down of an unmanned U.S. drone last week. President Trump had approved retaliatory airstrikes before subsequently calling them off.
The geopolitical tension has provided a second engine to a gold rally powered by expectations of monetary policy easing. The Fed indicated at its meeting last week that it could cut interest rates, possibly as soon as next month, to offset the effects of the trade conflict with China, which has slowed global growth and subdued U.S. inflation.
Ole Hansen, head of commodity strategy at Saxo Bank, pointed out that last week’s Commitment of Traders report revealed a record increase in net-long positions in gold in the three-week run-up to the Fed policy decision.
“With this in mind, the short-term focus turns to gold’s ability to hold onto these gains and reassure new longs that they have not bought another high but instead a potential new low,” Hansen said.
Stephen Innes, OANDA head of trading in Singapore, indicated that “gold continues to trade well despite equities rallying to all-time highs and while I do think one of these markets will eventually prove to be wrong, for the time being, the race to the bottom in fixed income market remains supportive for both.”
Innes warned that downside risks for gold centered on any sign of de-escalation in the Middle East or “a more trade-friendly atmosphere” out of this week’s G20 summit, but emphasized that strategic buyers are moving in on dips and said official demand from China also remained a strong pillar of support. Data released earlier this month showed the Chinese central bank had increased its monthly purchases of gold to nearly 16 tons in April, well above the average of the previous four months.
Given the number of possible catalysts that could trigger a stock correction, “gold needs to be your first flipside investment,” Innes concluded.
In other metals trading, silver futures rose 0.3% at $15.338 a troy ounce by 8:20 AM ET (12:20 GMT).
Palladium futures traded up 0.5% at $1,507.25 an ounce, while sister metal platinum advanced 0.4% at $818.85.
In base metals, copper fell 0.4% to $2.692 a pound.