The political tension between Iran and the US is driving up the price of gold
Gold traded near a 25-year high in London on speculation the escalating dispute over Iran's nuclear programme will spark demand for bullion as a haven. Gold has climbed 20% since 9 January, when Iran said it had resumed nuclear research. The US suspects Iran's objective is to build a nuclear bomb and Iran has now asked the United Nations to take urgent action against the US for what it describes as a threat to attack its nuclear facilities. Iran is the world's fourth-largest oil producer.
Graham Birch, who helps manage $8.5bn (£4.6bn) in mining assets for London-based Merrill Lynch Investment Managers, said: "It looks like the situation in Iran is going to slowly escalate, which will drive prices up even further.''
Gold for immediate delivery in London traded as high as $660.42 an ounce. Bullion rose to $661.63 on 2 May, its highest since October 1980. The United Nations Security Council is preparing a resolution calling on Iran to suspend its uranium enrichment.
Nicholas Burns, the US undersecretary of state for political affairs, claimed: "The council, the UN's highest body, may approve use of various measures, including 'use of armed force' for non-compliance with its resolutions."
"No-one is going to go short on gold in times like this,'' said David Gornall, head of foreign exchange and bullion at Natexis Commodity Markets in London. "As gold is not linked to a government or a geopolitical body, it becomes a natural investment in times of tension.''
Investors in the Middle East in particular may buy gold, said Birch, whose $1.7bn Gold and General fund has increased 115% in the past year. Members of the Organization of Petroleum Exporting Countries have also seen oil income soar as prices jumped almost 46% in the past year to a record $75.35 a barrel on 21 April.
"There is a long tradition in the Middle East of using gold as a type of saving. Things look really bad right now. There is plenty of money in the region."
Gold has also been supported by jewellery buying from India, the world's biggest consumer of bullion, Gornall said. "May is a traditionally a gold-buying month because there are a few religious festivals in India. They are buying even at these levels because they had run out of new gold.''
Among other precious metals in London, silver gained 13 cents, or 0.9% to $13.97, while palladium dropped $3.50 or 0.9% to $378.50. Platinum fell $3.75 or 0.3% to $1,164.75 .
By Danielle Rossingh
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