LONDON – The price of safe-haven gold rose to its highest for almost six years on Monday as investors piled into the precious metal over fears about a war in Iraq and an uncertain economic outlook.
Spot gold roared to $356.25 an ounce in European trading, its firmest since March, 1997 and up from Friday's New York closing level of $350.90/351.50.
Bullion is 28 percent higher than at this time last year, making it one of the strongest performing financial assets during a prolonged stock market downturn, a fragile spell for the dollar and a host of geopolitical tensions.
"Gold should remain firm for some time to come as global political tensions remain high, with the threat of war between the U.S. and Iraq and/or North Korea," said James Moore, metals analyst at TheBullionDesk.com.
Two Palestinian suicide bombings in Israel, a security scare in Frankfurt on Sunday and further dollar weakness and stock market losses also added to the sense of tension, traders said.
Prospects of another Gulf war and fears over further terrorist attacks underpinned the metal.
The United States has steadily increased its military presence in the Gulf as tensions with Iraq grow. British media on Sunday reported that Britain would begin deploying its troops in the region on Jan. 15.
"Gold is the current investment of choice...There is a general uncertainty in world affairs and Iraq characterizes peoples' fear of uncertainty," said Peter Hillyard, head of Metal Sales, Europe for ANZ Investment Bank, adding that gold had the potential to go to $375.
A weaker dollar also increased the attractiveness of dollar-denominated bullion for European investors.
"It doesn't look like it is going to calm down just yet," Simon Klimt, head of commodities at Westpac Banking Corp in Sydney, said.
By 1344 GMT, spot bullion had eased back to $353.45/353.15 as traders took profits.
Gold was set or "fixed" in the London morning session at $356.10, its strongest level since March 4 and up from its previous fixing level of $344.50.
"With the market looking well supported around the $342 level both from a technical and fundamental basis, it would appear as though the price will look to make fresh gains in the week ahead," Standard Bank London said in a report.
In Asia the Tokyo Commodity Exchange (TOCOM) held only a morning session on Monday after closing all last week. The benchmark December gold futures finished the day three yen higher at 1,352 yen on very good trade of 40,780 contracts.
In other precious metals, spot silver was trading at $4.91/4.93 an ounce, up from the New York close on Friday of $4.86/4.88, takings its cue from rallying gold to reach its highest since last July.
Platinum was quoted at $607.00/612.00 an ounce from New York's $602.50/607.50 and palladium was at $238.00/243.00 versus $237.55/245.55.