Safe-haven gold rallies over 3% as Middle East conflict intensifies

By Ashitha Shivaprasad

(Reuters) – Gold prices jumped more than 3% on Friday and were poised for their best week in seven months as the intensifying conflict in the Middle East sent investors scurrying for safe-haven assets.

Zero-yield bullion got an additional fillip from expectations that the U.S. interest rates may have peaked.

Spot gold was up 3.2% at $1,928.15 per ounce by 0309 p.m. ET (1908 GMT). U.S. gold futures settled 3.1% higher at $1,941.50. Prices were up 5.2% for the week.

Investors kept a tab on developments in the Middle East conflict, which has unnerved markets since the start of the week.

Israel said its infantry and tanks had carried out raids inside the Gaza Strip, its first announcement of a shift from an air war to ground operations to root out Hamas fighters a week after their deadly rampage in southern Israel.

This fuelled inflows into assets considered to be safe havens such as gold.

“Investors are fleeing to safe havens as the risks of Middle East tensions grow,” said Edward Moya, senior market analyst at OANDA.

“If the geopolitical situation gets gloomier, there is a good chance that gold prices could go to the $2,000 levels this year. We have come from mid-$1,800s to mid-$1,900s, $2,000 is just a fraction of that.”

U.S. consumer prices increased in September amid higher costs for rent and gasoline, but underlying inflation is slowing, data showed on Thursday.

Apart from the conflict, “despite yesterday’s warmer-than-expected (U.S.) inflation report, currently there is an expectation that the Fed will not hike rates in the November meeting, which is also helping (gold) prices,” said David Meger, director of metals trading at High Ridge Futures.

Traders currently see around a 69% chance of the Fed leaving interest rates unchanged this year, according to the CME Fedwatch tool.

Spot silver climbed 4% to $22.72 per ounce, on track for its first weekly gain in three.

Platinum rose 1.4% to $880.42, while palladium dropped 0.3% to $1,141.24 and was set for a weekly decline.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Alexander Smith and Sherry Jacob-Phillips)