Gold gets safe-haven boost as US authorises air strikes in Iraq

SINGAPORE - Gold climbed to 2-1/2-week highs on Friday after US President Barack Obama authorised air strikes in Iraq and the metal looked set to snap a three-week losing streak as global geopolitical tensions spurred safe-haven demand.

Bullion also got a boost from a drop in Asian share prices on growing fears that conflict in Ukraine and the Middle East could sap global growth.

Obama said he had authorised limited US air strikes to blunt an onslaught by Islamic militants in northern Iraq and begun military air-drops of humanitarian supplies to besieged religious minorities to prevent a "potential act of genocide".

The 10-year US Treasury yield hit a 14-month low and the dollar slipped against the safe-haven yen, showing increasing risk-aversion in financial markets.

"There is some panic in the equity markets after the Iraq announcement, and that along with the Ukraine crisis is bringing safe-haven demand for gold," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. "Gold could climb quickly up to $1,325 an ounce."

Spot gold hit $1,316.80 an ounce, its highest since July 21, and at 0324 GMT was up 0.2 per cent on the day at $1,315.80.

The metal has gained 1.7 per cent this week, its first increase in four weeks and the best week in seven. US gold was up about $5 at $1,317.70.

Gold was boosted earlier in the week after US and European equities slumped due to the tension between Russia and the West over Ukraine.

Moscow banned imports of most food from the West on Thursday in retaliation against sanctions against it over Ukraine, a stronger-than-expected response that isolates Russian consumers from world trade to a degree unseen since Soviet days.

NATO's secretary general, visiting Kiev in a show of support for Ukraine, called on Russia to pull back from the brink of war against its neighbour. The Western military alliance says Moscow has massed troops on the border in preparation for a possible ground invasion.

The European Central Bank warned that the conflict in Ukraine posed a serious risk to the bloc's economy.

Meanwhile, in the physical markets, buying interest slowed with the price gains. Prices in top buyer China were on a par with the global benchmark, whereas earlier in the week gold commanded premiums of about $2 or $3 there.

Persistent weakness in physical demand would make it hard for gold to sustain any price rally.