Gold tops $2,700 an ounce as Middle East tensions rise

Gold topped the $2,700-per-ounce mark for the first time on Friday, driven largely by escalating tensions in the Middle East. The demand for gold, regarded as a haven, has also been driven by a combination of economic uncertainty and falling interest rates, analysts have said. By Friday evening in New York, the price of gold had risen by 0.8 per cent on the day to trade at $2,713.70, for a weekly rise of 2.1 per cent, making it one of the best-performing commodities of the year, with an increase of almost 32 per cent since the beginning of January.Some of the recent gains initially appear counter-intuitive, given the European Central Bank interest rate cut and boost to the dollar, according to Philip Newman, managing director of Metals Focus. The price of gold, which pays no interest, tends to rise when interest rates are cut. Furthermore, with recent strong US economic data, markets are overwhelmingly pricing in a 25-basis-point interest rate cut at the November meeting of the Federal Reserve. There is also investor uncertainty about the outcome of next month’s presidential election. “This tells us that investment inflows are meaningful,” Newman said.Chris Beauchamp, chief market analyst at IG, the online trading platform, said the price of gold is set to continue its upward trend “driven by continued geopolitical worries, central bank buying and falling interest rates. It continues to be a banner year for gold bugs, with no sign of the gains being reversed yet.”Central banks remain keen buyers of gold to diversify their reserves for financial or strategic reasons. Global central banks increased purchases for their reserves by 6 per cent to 183 tons in the second quarter of this year, according to the World Gold Council.Frank Watson, market analyst at Kinesis Money, said the price of the precious metal “should continue to push higher” but warned “ it may encounter resistance at around $2,750 an ounce.” The recent rate cuts by the ECB, the Bank of England and the Fed, with more to come, has boosted new interest in buying gold, according to BullionVault, the online market.