Daily Gold Update

Source: MarketWatch

New York— Gold futures rallied afresh Friday, climbing to over $660 an ounce, as violence between Israel and Lebanon drove crude oil prices to unprecedented highs, fuelling safe-haven demand for gold.

Gold for August delivery was last up $10.10 at $664.50 an ounce on the New York Mercantile Exchange, reaching its highest level since May 30.

With the escalation of violence and political tensions around the world this week, gold's safe-haven allure has spurred buying.

On Thursday, Israel intensified its attacks on Lebanon, continuing to bomb Beirut's international airport, major roads, power and communications infrastructure. Earlier this week, deadly train bombings in India's financial center of Mumbai and developments surrounding Iran's and North Korea's nuclear ambitions have also boosted demand for gold.

Responding to the deterioration of security in the Middle East, the U.S. stock market tanked Friday. In contrast, crude for August delivery rose as high as $78.40 a barrel in electronic trade, the highest ever level for a front-month contract. Oil later settled back and was last trading up $1.05 at $77.75 a barrel.

"With no sign of a let up in geo-political tensions and oil prices potentially looking to test $80 a barrel, I think there is now scope for gold to test $680," said James Moore of TheBullionDesk.com.

Jon Nadler, an analyst at Kitco.com, said: "Fast approaching the $670 target, gold now stands poised to spring to $680 and $700 in short order, should any single geopolitical trouble spot erupt into a larger or more serious conflagration." Investors' preference for cash and safe-haven assets is "quite clear," Nadler said.

Other metals prices were mixed. Silver added 18.50 cents at $11.670 an ounce and copper rose 1.95 cents at $3.696 a pound. Platinum was up $1.0 at $1,265.0 an ounce, while palladium dropped $3.80 at $330.25 an ounce.

"Silver, platinum and palladium are industrial metals first, and are stores of value secondarily… if at all," said Dennis Gartman in The Gartman Letter. "Gold, however, remains the currency of choice during periods of political instability. It is such again."

Israel has imposed an air and sea blockade on Lebanon in response to the kidnappings of two Israeli soldiers along the Israel-Lebanon border by Hezbollah on Wednesday. Early Friday, for a second day, Israel continued to shell Beirut's international airport as well as Lebanese towns, striking a Beirut power plant and the main highway from Beirut to Damascus, the Syrian capital, according to media reports.

Hezbollah late Thursday launched a rocket at Haifa, Israel's third-largest city. The group has also attacked the Israeli towns of Kiryat Shmona, Nahariya and Safed, the BBC reported.

"Buying in response to the Lebanon attacks allowed gold to close at $652.90 and follow through bidding in after-market trade triggered a gradual rally through $655 to $665.75 by the time trade started in Asia," Moore said.

An emergency meeting of the United Nations Security Council is scheduled for Friday. Lebanon is seeking a U.N. a resolution that would lead to a ceasefire.

The Lebanese Prime Minister Fuad Saniora said President Bush has pledged to pressure Israel to stop the attacks, the Associated Press reported. The European Union and Russia have condemned Israel's air and naval blockade of Lebanon. Violence in the Middle East should be high on the agenda at this weekend's summit of the Group of Eight in St. Petersburg, Russia.

Richard Bernstein, chief investment strategist at Merrill Lynch, said in a note to investors that this week's flaring of violence around the world, especially in the Middle East and India, reinforced his expectation that global political instability will only grow in the future.

"It is unfortunate, but defense stocks (both in the US and Europe) and small gold positions still look attractive to us," Bernstein said.

On the supply side, gold inventories rose by 34,802 troy ounces to 8.07 million as of late Thursday, according to Nymex data.

Silver supplies fell by 24,993 troy ounces to 101.9 million and copper stocks fell by 286 short tons to 7,510 short tons.