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LONDON: Gold prices rallied to 3-1/2 month highs above $1,430 an ounce on Wednesday as rising tensions over Syria sparked safe-haven demand and a scramble among investors to reduce their bets on falling prices.
The precious metal reached a peak of $1,433.31 an ounce in early trade, its highest since May 14, as the United States and its allies geared up for a probable military strike against Syria that could come within days.
Western envoys have told the Syrian opposition to expect a military response soon against President Bashar al-Assad's forces as punishment for a chemical weapons attack last week, according to sources.
Spot gold was up 0.7 percent at $1,425.60 an ounce at 0933 GMT, while US gold futures for December delivery were up $5.60 an ounce at $1,425.80.
"Short term, the focus is likely to rest on what happens in the Middle East," Credit Suisse analyst Tom Kendall said.
"There is a degree of safe-haven demand from in and around the Middle East, and with the move up in price in the last couple of weeks, you've had something of the order of 6 million ounces of short-covering going through on the Comex futures and options market. That's been playing into it as well."
Investors sold gold heavily in the first half of 2013, pushing prices to their lowest in nearly three years, on speculation that ultra-loose US monetary policy was coming to an end. Many positioned themselves for further losses and have now had to close out those positions.
Prices have risen nearly 8 percent this month, their biggest monthly climb since January 2012, as expectations receded that the Federal Reserve is set to imminently curb its bullion-friendly $85 billion monthly bond-buying programme.
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