Gold and silver rallied after a strike against Saudi Arabian oil facilities raised the possibility of retaliatory US military action in the Middle East, with investors seeking haven assets at the start of a week that’ll also see critical policy decisions from central banks including the Federal Reserve.
Bullion jumped more than 1.5% as investors gauged the ramifications from the assault against the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais. Secretary of State Michael Pompeo blamed Iran for the disruption; that charge was rejected by Tehran.
Gold hit a six-year high this month as slowing growth and the US-China trade war drove central bank easing, with geopolitical tensions playing a secondary role aiding prices. After reducing rates in July, the Fed is poised to cut again at its Sept. 17-18 meeting. Following the strike over the weekend, President Donald Trump said the US is “locked and loaded depending on verification” that Iran staged the attack, raising the specter of a military response.
“This is a major facility that’s been attacked and if there’s any further escalation, then the gold price will rally harder,” David Lennox, an analyst at Fat Prophets, said by phone. “I don’t know what the US will do: they’re locked and loaded,” he said, adding Trump is an “unknown quantity.”
Spot bullion climbed as much as 1.6% to $1,512.14 an ounce and was at $1 503.88 at 6:59 a.m. in London, while silver advanced as much as 3.2% to $17.9938 an ounce. Platinum and palladium also rose.
Heading into this week, bullion holdings in exchange-traded funds had shrunk on signs that relations between Beijing and Washington were at last starting to thaw. The holdings fell 17.2 tons last week, the biggest weekly loss in tonnage terms since March 1, but they’re still near the highest level since 2013.
“Gold and silver should be significant beneficiaries of the expected rush to safety, and the impending rounds of central bank rate cuts this week,” Jeffrey Halley, a senior market analyst at Oanda, said in a note. “A continued escalation of tensions, or a move into outright hostilities in the Middle East, could see a $1 600 handle sooner rather than later.”
© 2019 Bloomberg L.P.