Daily Gold Update

Source: Marketwatch

San Francisco— Gold futures rose Monday after Iran warned that U.S. actions could lead it to halt shipments of oil, sending crude prices sharply higher and creating a safe-haven bid for gold.

Gold for August delivery was last up $8 or 1.3%, at $649 an ounce on the New York Mercantile Exchange. On Friday, the contract gained $7.50 as the dollar fell sharply following a weaker-than-expected May jobs report.

"If you make a wrong move regarding Iran, definitely the energy flow in this region will be seriously endangered," Iran's supreme leader, Ayatollah Ali Khamenei, warned on state television over the weekend, the BBC reported.

The warning came just days after the permanent members of the United Nations Security Council and Germany reached agreement on a package of incentives to offer Iran in an attempt to persuade it to halt its nuclear research.

Tehran maintains it's aiming to create a civilian energy program, while western powers fear it is trying to create nuclear weapons.

The incentive package is part of a broader effort to solve the dispute diplomatically, but Khamenei's words suggest Iran has not ruled out some sort of U.S.-backed military action against it.

Meanwhile, Citigroup upgraded its gold-price forecasts, predicting that the metal will rally back through its recent peak above $730 an ounce as inflation fears persist.

"Following the current period of volatility and instability we expect investors to refocus on the previous concerns of continuing high oil prices leading to higher inflation, which would ultimately lead to higher interest rates and a subsequent slowing down of the U.S. economy resulting in a weaker U.S. dollar," said Jonathan Battershill, an analyst at Citigroup in Sydney. "All of these factors would result in stronger gold prices."

The dollar was last trading down 0.2% against the yen and down 0.3% against the euro.

Citigroup is now expecting average gold prices of $700 an ounce in 2007 followed by $750 in 2008.

Elsewhere in the metals sector, silver was up 16.5 cents at $12.25 an ounce. Platinum rose $13.10 to $1,258 an ounce, and palladium rose $2.85 to $356 an ounce.

Copper recovered early losses to trade up 0.4 cents at $3.59 a pound. The contract was hit by profit taking after Alan Garcia won the Peruvian election over the weekend. Garcia's opponent Ollanta Humala had threatened to nationalise the country's natural resources, following a trend seen in neighboring countries.

Copper was also weaker after Freeport-McMoRan said it expects second-uarter copper sales at its Indonesia unit to fall 16% below forecasts. The company blamed the shortfall on the iculty mining a small section of ore at one of its properties, which has an abnormally high clay content.

On the supply side, gold inventories were lower by 195 troy ounces to 7.79 million troy ounces as of late Friday, according to New York Mercantile Exchange data.

Silver supplies fell by 226,850 troy ounces to 108.2 million, and copper supplies were down by 386 short tons to 9,092 short tons.

Indexes that track the mining sector were higher as metals prices rose.

The Philadelphia Gold and Silver Index was up 1.1% at 145.19.

The CBOE Gold Index stood at 148.35, up 1%.

The Amex Gold Bugs was up 1.2% at 341.54.

The StreetTracks Gold Trust exchange-traded fund added 0.7% to $63.92, while the iShares Silver Trust ETF was up 0.9% at $122.84.

The Market Vectors-Gold Miners ETF added 1.4% to $39.67.