Oil and gold on a run as Middle East tensions rock markets

Gold has surged close to a new record and oil prices have jumped on concerns over the potential for a wider regional conflict that could endanger crude supplies.

Spot bullion rose as much as 1.6 per cent - before paring gains - after US officials said Israel had struck targets in Iran, raising the risk of a wider regional conflict. Base metals also jumped although they also trimmed the initial advance.

“The Middle East turmoil is causing spikes across oil, gold, copper,” Jia Zheng, head of trading at Shanghai Dongwu Jiuying Investment Management Co., said by phone. “Gold is rising on haven demand.”

Bullion has smashed records in a powerful rally since mid-February, driven by the prospect of US interest rate cuts, continued purchasing by central banks and strong consumer demand, especially in China. Simmering international tensions have also boosted the precious metal, which broke through $US2400 a tonne in this morning’s move.

Traders have been girding for an Israeli response to the Islamic Republic’s unprecedented missile and drone attack last weekend, with the rhetoric between the two escalating as Tehran warned against striking its nuclear facilities

“Technically speaking, we are also clear above a key short-term resistance level” of $US2400 an ounce for gold, Kelvin Wong, senior analyst at Oanda Asia Pacific Pte., said. “That also explains a fresh round of short term speculators rushing to the market at this juncture.”

An explosion was heard Friday in Iran’s central city of Isfahan, the country’s semi-official Fars news agency reported, as concerns mounted about Israeli retaliation.

Flights were suspended in Isfahan and the Iranian cities of Tehran and Shiraz as well as airports across the country’s western borders, Iran’s Mehr news agency also reported.

Separately, US data on Thursday had fanned concerns that the Federal Reserve has some way to go before cutting rates - a view shared by a number of policymakers. Higher borrowing costs are typically negative for the precious metal, which doesn’t pay interest.

Spot gold was up 0.5 per cent at $US2391.17 an ounce at 11:46am in Singapore, while copper was 0.1 per cent higher. The Bloomberg Dollar Spot Index rose 0.3 per cent. Silver, palladium and platinum also rose.

Oil jumped after US officials said Israel struck targets in Iran, with Brent rallying on concerns over the potential for a wider regional conflict that could endanger crude supplies.

Global benchmark Brent surged - topping $US90 a barrel at one point, before paring gains.

Haven assets also rose as tensions ratcheted higher. Gold spiked toward a record, before giving back some of its gains, while the US dollar climbed to a multi-month high.

“Depending on the nature of strikes, we are moving closer toward a scenario where supply risks become a reality,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “The market will likely have to start pricing in an even larger risk premium.”

Crude has rallied this year, with gains driven by the worsening hostilities in the Middle East, as well as OPEC+ supply cuts that have tightened the market. Higher energy prices, if sustained, would boosts risks for the global economy and pose a challenge for central bankers as they seek to tame inflation.

The supply curbs orchestrated by OPEC+, which include cutbacks in Saudi Arabia as well as Russia, mean that the producer group has a buffer of unused capacity of several million barrels a day. At present, the output restrictions are set to last through the first half of this year.

Trading volumes spiked, with nearly 400,000 lots of Brent and over 330,000 of West Texas Intermediate traded by about noon in Singapore, far more than usual. There was also active trading of Brent June and July call options - which profit when prices gain. The premium of call options over put options also surged to the most since early 2022.

“We continue to highlight the heightened risk that this war will move up the escalation ladder,” RBC Capital Markets LLC analysts including Helima Croft said in a note before crude’s spike. “Oil supplies could be caught in the cross-hairs of this metastasising conflict.”

Bloomberg.