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London: Gold firmed in Europe yesterday as reports Iran had test-fired missiles lifted oil prices and prompted buying of bullion as a safe haven.
Gold rose to $923.70/924.70 at 1507 GMT from $921.35/922.55 an ounce late in New York on Tuesday, when the precious metal shed one per cent to a near two-week low of $912.50 as oil prices dropped.
"The prices are holding up because of a risk premium generated by the tensions in the Middle East," said commodity analyst Manqoba Madinane at Standard Bank in Johannesbourg.
"Oil prices have increased from Tuesday's levels and that's also supporting the upside on gold," he said.
Iran test-fired nine missiles yesterday and warned the US and Israel it was ready to retaliate for any attack over its disputed nuclear projects.
Oil rose $2 to around $138 a barrel, after Iran said it had test-fired missiles that could reach Israel and US bases in the region.
Rising oil prices increase gold's appeal as an inflation hedge and boost sentiment towards commodities as an asset class while rising tension in the Middle East allures safe-haven buying.
"Gold benefits directly from geopolitical tension, so it would have received support from that news," said Merrill Lynch metals strategist Daniel Hynes.
The dollar weakened, as oil prices rebounded and geopolitical tensions resurfaced with news Iran test-fired missiles and unknown gunmen attacked the US consulate in Turkey.
A lower dollar tends to benefit the precious metal, which is often bought as a hedge against currency weakness and so moves in the opposite direction to the greenback.
The precious metal has had a poor start to the week, trading more than two per cent lower at its weakest point as the dollar has ticked up and oil prices have dropped.
However, fears over inflation and financial market instability are supporting gold.
"The metal is under pressure from the recent firming in the dollar and crude's two-day decline, but supported by concerns about financial market weakness, inflation and the ongoing effects of the credit crunch," said UBS analyst John Reade in a note.
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