Global gold edges higher, oil hits five-month high after US joins Israeli attacks on Iran
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Global gold edges higher, oil hits five-month high after US joins Israeli attacks on Iran

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A map showing the Strait of Hormuz and Iran is seen behind a 3D printed oil pipeline in this illustration taken on Sunday. (Photo: Reuters)
A map showing the Strait of Hormuz and Iran is seen behind a 3D printed oil pipeline in this illustration taken on Sunday. (Photo: Reuters)

Gold edged higher as the world waited for Iran’s response after the United States joined the Israeli assault on Iran over the weekend, risking a wider war that could push up energy prices.

The precious metal climbed as much as 0.8%, before paring most of that gain, after the US struck Iran’s three main nuclear sites. That spurred a flight to havens like the dollar and gold on Monday, while oil prices jumped sharply on fears that Tehran could attack Middle Eastern energy infrastructure or threaten shipping in the Strait of Hormuz.

The escalation of hostilities has given fresh impetus to a rally that’s pushed gold up almost 30% so far this year.

Tehran, so far, hasn’t launched any major retaliatory attacks, and is likely to receive only rhetorical support from Russia and China, while militia groups it’s armed and funded for years are refusing or unable to enter the fray. Iran may also not want to antagonise Beijing by taking any action that would lead to a major surge in oil prices. That, together with the fact that bullion is only about $125 an ounce off its record high reached in April, may be restraining gains at this point.

“The fear of a broader regional conflict in the Middle East, critical for global energy supplies, has driven a surge in demand for gold as investors seek to mitigate risk,” said Bas Kooijman, chief executive officer of DHF Capital SA. “The dual forces of uncertainty and accommodative monetary policy are likely to keep gold prices near record highs in the near term.”

Spot gold climbed 0.2% to $3,375.04 an ounce as of 7.47am in Singapore (6.47am Thailand time), taking it to within $125 of its record high. The Bloomberg Dollar Spot Index added 0.1%. Silver edged higher, while platinum and palladium fell.

Oil prices jumped on Monday to their highest since January as the US' weekend move to join Israel in attacking Iran's nuclear facilities stoked supply worries.

Brent crude futures was up $1.92 or 2.49% at $78.93 a barrel as of 0117 GMT (8.17am Thailand time). US West Texas Intermediate crude advanced $1.89 or 2.56% to $75.73.

Both contracts jumped by more than 3% earlier in the session to $81.40 and $78.40, respectively, touching five-month highs before giving up some gains.

Iran is Opec's third-largest crude producer.

Market participants expect further price gains amid mounting fears that an Iranian retaliation may include a closure of the Strait of Hormuz, through which roughly a fifth of global crude supply flows.

Iran's Press TV reported that the Iranian parliament had approved a measure to close the strait. Iran has in the past threatened to close the strait but has never followed through on the move.

"The risks of damage to oil infrastructure ... have multiplied," said Sparta Commodities senior analyst June Goh.

Although there are alternative pipeline routes out of the region, there will still be crude volume that cannot be fully exported out if the Strait of Hormuz becomes inaccessible. Shippers will increasingly stay out of the region, she added.

Goldman Sachs said in a Sunday report that Brent could briefly peak at $110 per barrel if oil flows through the critical waterway were halved for a month, and remain down by 10% for the following 11 months.

The bank still assumed no significant disruption to oil and natural gas supply, adding global incentives to try to prevent a sustained and very large disruption.

Brent has risen 13% since the conflict began on June 13, while WTI has gained around 10%.

The current geopolitical risk premium is unlikely to last without tangible supply disruption, analysts said.

Meanwhile, the unwinding of some long positions accumulated following a recent price rally could cap an upside to oil prices, Ole Hansen, head of commodity strategy at Saxo Bank, wrote in a market commentary on Sunday.

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