Gold gains as Iran standoff continues

Gold gained in London, driven higher by investors buying the metal as a haven and hedge against inflation as the standoff between the United Kingdom and Iran over British servicemen held captive in the Gulf continued.

Crude oil rose to a three-month high after Iran took 15 British servicemen captive and the United Nations imposed new sanctions against the country, heightening concern that supplies from the West Asia will be disrupted. The metal surged to a 26-year high in May partly as oil prices climbed to a record.

"The situation in the Gulf is quite tense, which is bullish for gold," Bernard Sin, chief trader at gold refiner MKS Finance SA in Geneva, said in an interview today. Investors also bought the metal as oil rose, he added. "It is a long-term strategy, but there are still investors out there who buy gold as an anti-inflation hedge,'' Sin said.

Gold for immediate delivery in London rose as much as $2.60, or 0.4 per cent, to $660.00 an ounce today, and traded at $659.30 at 10:30 am local time.

Crude oil rose as much as 1.1 per cent to $62.96 a barrel, the highest since December 20, on concern that Iran's capture of British naval personnel will heighten tensions in the West Asia, the source of a third of the world's oil. "Gold may trend a little higher with stronger oil prices,'' said Cai Zhenwei, a Bank of China trader in Shanghai.

Bullion may trade as high as $668 this week, MKS Finance's Sin forecast. "The market is waiting for a reaction from Iran," he said.

Britain considers Iran's seizure of a group of sailors and marines in the Persian Gulf a "very serious situation", Prime Minister Tony Blair said yesterday. Iran, the world's fourth-largest oil producer, said the UK forces had entered its territorial waters illegally.

Gold may rise for a fourth straight week, a Bloomberg News survey showed, amid speculation that the Federal Reserve would not raise US interest rates, weakening the dollar and boosting the appeal of the precious metal as an alternative investment.

Among other precious metals for immediate delivery in London, silver gained 8 cents to $13.24 an ounce, palladium rose $1.50 to $354.50, while platinum climbed $7.50 to $1,234.50 an ounce.