Gold prices struck near six-year highs yesterday as a weaker dollar and escalating US-Iran tensions fuelled a flight to haven assets, while oil futures built on strong gains.
The week has been an eventful one for stock markets, crude prices and the dollar - and investors still have a key G20 summit to look forward to, hoping for progress on the US-China trade war.
“Gold has been one of the week's biggest stories, with the precious metal hitting $1,400 (an ounce) for the first time in almost six-years overnight,” noted Joshua Mahony, senior market analyst at IG trading group.
“The gold spike is driven by risk-off sentiment alongside dollar weakness, with overnight talk of a cancelled US strike on Iranian targets highlighting how close we are from a huge ramp-up in conflict between the two nations.”
US President Donald Trump on Thursday approved but then scrapped strikes against Iranian targets, The New York Times reported.
Oil prices rose further yesterday but the gains were muted compared to a day earlier when crude futures surged about 4.5 per cent on rising tensions between the US and Islamic Republic.
Fears of a conflict in the oil-rich Middle East ratcheted up Thursday when Tehran said it had shot down a US ‘spy drone’ that was violating its airspace, but which Washington said was over international waters.
The US authorities then banned American civilian aircraft from the area, and airlines including British Airways, Qantas, KLM and Lufthansa yesterday suspended flights over the Strait of Hormuz, situated close to where the drone incident occurred.
Recent attacks on tankers close to the Strait, a key shipping lane in the Gulf region through which nearly one-third of the world's oil is transported, sent oil prices surging late last week.
But it was gold’s turn to take centre stage yesterday, with the commodity reaching $1,412.08 an ounce, the highest level since September 2013.
Demand for gold has surged since the Federal Reserve on Wednesday indicated it would likely cut interest rates soon - for the first time in a decade - which sent the dollar tumbling across the board.
By contrast, stock markets have risen strongly this week after the Fed opened the door to a potential interest rate as soon as July.
The dollar’s losses have however been capped with both the ECB and Bank of England also presenting dovish outlooks for eurozone and British interest rates amid growth weakness, in part owing to Brexit uncertainty.
“With central banks having set out their stalls, it's now over to the presidents of the US and China next week to really blow investors away and push forward with trade talks,” said Craig Erlam, senior market analyst at Oanda.
Markets’ focus is also firmly on next week’s planned meeting between Mr Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 in Japan.