Panicking investors send gold prices surging to six-year high after tensions flare in the Middle East
Panicked investors sent gold prices surging to a six-year high after tensions flared in the Middle East.
Jitters over the growing risk of a conflict between the US and Iran pushed the value up to $1452.60 per ounce – its highest level since May 2013.
The surge came after the US Navy shot down an alleged Iranian drone in the Gulf, suggesting investors fear an armed confrontation is increasingly likely. However, the rally occurred before reports from Iran that it had seized a British oil tanker. The UK Government said last night it was urgently seeking more information on British ship the Stena Impero.
After hitting its peak early yesterday, gold was trading a little lower at around $1,425 an ounce late last night. Gold tends to spike in times of strife because it is seen as a safe haven if stock markets are about to crash.
US President Donald Trump said the navy destroyed a drone on Thursday that approached one of its ships, the USS Boxer, when it came within threatening range and refused to back down. Iran denied losing a drone.
The USS Boxer was in the strategically important Strait of Hormuz, a narrow corridor of sea that runs between Iran and the Arabian Gulf, which is a vital shipping route for oil and gas exports and has been the site of attacks on tankers that the US has blamed on Iran since May.
Relations with the hard-line Islamist country have deteriorated under the Trump administration, which axed a treaty that had been agreed by former president Barack Obama, and the US is preparing to send around 500 troops to Saudi Arabia to bolster its presence in the region.
During geopolitical turmoil investors often flock to so-called safe haven assets such as gold and other precious metals.
This is because, as a physical asset, its value is less likely to fall than that of currencies or stocks if markets experience turbulence and are not affected by rate changes.
Gold prices have rallied by 11 per cent so far this year as the US-China trade war has rattled on and worries have increased that the global economy is slowing down.
Meanwhile, billionaire investment guru Ray Dalio urged investors to pile into the metal as the risk of international turmoil rises. The 69-year-old, who founded investment titan Bridgewater Associates in 1975, said the metal will be a top investment amid coming upheaval. On networking site Linkedin, he said: ‘Those assets that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.’
Investment bank Morgan Stanley has tipped gold as being its top pick among commodities over the next six months.
Although the metal’s value has spiked this year, it is still far off highs of more than $1,900 in 2011 as the financial crisis raged and banks reeled across the planet.
Some analysts warn against investing in gold because, unlike shares, savers do not get a dividend. Alternatives include investing in gold mining companies, which are still exposed to the price but also offer regular payouts to shareholders.
As well as increasing strain in the Gulf, gold prices were boosted by growing fears the US Federal Reserve will cut interest rates to bolster the US economy.
New York Fed president John Williams said that it ‘pays to act quickly to lower rates at the first sign of economic distress’, prompting speculation that the US will cut interest rates by 0.5 per cent rather than the forecast 0.25 per cent.
A cut of this size would be a major statement and would suggest the Fed is fearful of a severe slowdown. Lower rates suggest the economy is running into trouble.