(Reuters) – Goldman Sachs maintained its three-month, six-month and twelve-month forecast for gold at $ 1,600 a troy ounce on Monday as safe haven bonds are better hedging than oil in periods of geopolitical uncertainty.
"The range of possible scenarios is very wide. They range from shocks in the oil supply to the destruction of oil demand – which would have a negative impact on oil prices," said Wall Street Bank in a note levels.
At the weekend, US President Donald Trump threatened to sanction Iraq after Baghdad demanded the withdrawal of American and foreign troops. This happened in light of the growing backlash against the US assassination of an Iranian commander in chief.
Concerns about a further escalation of tensions in the Middle East pushed gold prices to their highest level in nearly seven years, and Trump threatened to strike back if Tehran returned the favor.
In times of political and financial uncertainty, gold is often seen as an alternative investment.
"Sharp geopolitical tensions will lead to higher gold prices if they are serious enough to cause currency deterioration," the bank said, adding that escalating tensions between the US and Iran would further fuel the bars.
It is not to be taken for granted that a possible retaliation from Iran would target oil-producing assets, Goldman said, implying that recent attacks on the US Embassy in Baghdad have not disrupted neighboring oil fields.
Crude oil prices rose due to increasing tensions in the Middle East.
Goldman added that demand for base metals could weaken and economic activity would dampen the further escalation of geopolitical tensions.
(Reporting by Asha Sistla and K. Sathya Narayanan in Bengaluru, edited by Sherry Jacob-Phillips)