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Sunday, 5 January 2020

Gold, oil jump in Asia as U.S. and Iran trade threats

January 6, 2020

By Wayne Cole

SYDNEY (Reuters) – Asian share markets ran into turbulence on Monday as a flare-up of tensions in the Middle East sent gold to its highest in almost seven years while oil flirted with four-month peaks.

The United States detected a heightened state of alert by Iran’s missile forces, as President Donald Trump warned the U.S. would strike back, “perhaps in a disproportionate manner,” if Iran attacked any American person or target.

Iraq’s parliament on Sunday recommended all foreign troops be ordered out of the country after the U.S. killing of a top Iranian military commander and an Iraqi militia leader.

Spot gold <XAU=> surged 1.2% to $1,569.47 per ounce in jittery trade and reached its highest since April 2013.

Oil prices added to their gains on fears any conflict in the region could disrupt global supplies. [O/R]

Brent crude <LCOc1> futures rose $1.02 to $69.62 a barrel, while U.S. crude <CLc1> climbed 81 cents to $63.86.

“The risk of further escalation has clearly gone up – given the direct attack on Iran, Iran’s threat of retaliation and Trump’s desire to look tough – posing the threat of higher oil prices,” said Shane Oliver, chief economist at AMP Capital.

“Historically though oil prices need to double to pose a severe threat to global growth and we are long way from that.”

MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was off 0.2% though China had yet to open.

Japan’s Nikkei <.N225> slid 1.7% in a sour return from holiday, while E-Mini futures for the S&P 500 <ESc1> fell 0.4% in very choppy trade.

Sovereign bonds benefited from the safety bid with yields on 10-year Treasuries <US10YT=RR> down at 1.77% having fallen 10 basis points on Friday. Treasury futures <TYc1> gained 7 ticks.

In currency markets, the Japanese yen remained the favored safe harbor courtesy of Japan’s massive holdings of foreign assets. Investors assume Japanese funds would repatriate their money during a true global crisis, pushing the yen higher.

Early Monday, the dollar was flat at 108.00 yen <JPY=>, after touching a three-month trough of 107.78. The euro likewise eased to 120.45 yen <EURJPY=> having hit a three-week low.

The dollar was steadier against the other majors, with the euro little changed at $1.1166 <EUR=>. Against a basket of currencies, the dollar was holding at 96.853 <.DXY>.

(Editing by Sam Holmes)

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