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Gold hits record peak, oil rises on geopolitical tensions

Gold prices hit a record $2,277.02 per ounce (DAVID GRAY)
Gold prices hit a record $2,277.02 per ounce (DAVID GRAY)

Gold prices hit another historic peak Tuesday and oil extended gains over rising tensions in the Middle East, while stocks wilted as traders worried whether the rally has run its course.

The haven precious metal advanced as high as $2,279.41 per ounce to extend its blistering record-breaking run, driven also by the prospect of interest-rate cuts in the coming months.

Oil prices pushed to five-month highs as Iran warned its arch foe Israel that it will retaliate for a deadly air strike on its consular annex building in Syria's capital Damascus, raising fears of a spillover of the Gaza war across the region.

"Gold's historic safe haven appeal has been re-ignited by geopolitical factors which includes the current crisis in the Middle East," said Rabobank analyst Jane Foley.

"The possibility of an escalation in the Middle East given current headlines regarding Iran's accusations of Israeli strike on a consulate building in Syria are underpinning gold prices today," she added.

Gold prices are rising as traders anticipate interest-rate cuts by the European Central Bank, Bank of England and the US Federal Reserve in June as inflation is slowing, analysts said.

"When interest rates fall, gold becomes relatively more attractive compared with fixed income assets such as bonds, which offer weaker returns in a lower interest rate environment," said City Index analyst Matthew Weller.

- Stocks retreat -

In equities trading, New York's main indices fell, a day after a stronger-than-expected reading of US manufacturing and prices paid sparked questions about the Fed's timeline for cutting interest rates.

US Treasury bond yields, a proxy for interest rates, climbed again as analysts to push back expectations for Federal Reserve interest rate cuts.

On Tuesday, a senior Federal Reserve official said that she recently raised her prediction for interest rates over the longer term.

"I raised my estimate to reflect the continued resilience in the economy despite high nominal interest rates and higher model-based estimates of the equilibrium interest rate," said Cleveland Fed president Loretta Mester

Market analyst Fawad Razaqzada at City Index and FOREX.com said that concerns about the rally that has seen the S&P 500 rise around 28 percent since October has prompted some profit-taking.

"Following such a big move, the risks of a correction are high, especially when you consider for example that US oil prices are pushing $85 per barrel and governments are facing rising cost of servicing their debt as yields climb," he said.

In Europe, London briefly broke above 8,000 points to enter record closing territory thanks to higher oil prices, but gave up its gains and ended the day lower.

Paris and Frankfurt also fell in subdued deals following a four-day Easter shutdown.

In Asia, Hong Kong stocks rallied as Asian traders also returned from an extended weekend break to forecast-beating Chinese factory data that lifted hopes for the world's number-two economy, though other Asian markets were mixed.

- Key figures around 2020 GMT -

New York - Dow: DOWN 1.0 percent at 39,170.24 (close)

New York - S&P 500: DOWN 0.7 percent 5,205.81 (close)

New York - Nasdaq Composite: DOWN 1.0 percent at 16,240.45 (close)

London - FTSE 100: DOWN 0.2 percent at 7,935.09 (close)

Paris - CAC 40: DOWN 0.9 percent at 8,130.05 (close)

Frankfurt - DAX: DOWN 1.1 percent at 18,283.13 (close)

EURO STOXX 50: DOWN 0.8 percent at 5,042.00 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 39,838.91 (close)

Hong Kong - Hang Seng Index: UP 2.4 percent at 16,931.52 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,074.96 (close)

Dollar/yen: DOWN at 151.58 yen from 151.65 yen on Monday

Euro/dollar: UP at $1.0771 from $1.0743

Pound/dollar: UP at $1.2577 from $1.2552

Euro/pound: UP at 85.61 pence from 85.59 pence

Brent North Sea Crude: UP 1.7 percent at $88.92 per barrel

West Texas Intermediate: UP 1.7 percent at $85.15 per barrel

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