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Gold Trades Near 2-1/2 Month High in Asia on Iran Tension, Oil

By Glenys Sim

July 2 (Bloomberg) -- Gold traded near a 2-1/2 month high as geopolitical tension in the Middle East and rising oil prices spurred investor demand for bullion as a haven.

Gold tends to gain alongside oil as demand for a hedge against accelerating consumer price rises. Oil gained for a second day after the International Energy Agency said supplies may not keep up with demand through 2013, and on speculation that Israel could take military action against Iran.

``Bullion prices surged on a mix of heightened geopolitical tensions, higher oil prices, and expectations of an imminent ECB interest rate hike,'' James Steel, an analyst at HSBC Securities in New York, wrote in a report e-mailed today.

Bullion for immediate delivery was at $941.35 an ounce at 1:25 p.m. in Singapore, after reaching $946.08 yesterday, the highest since April 18. Silver for immediate delivery added 0.2 percent to $18.14 an ounce.

Crude oil for August delivery rose as much as $1.48, or 1.1 percent, to $142.45 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

Aiding gold's rally was the declining dollar, which traded near a three-week low against the euro and yen ahead of U.S. job market reports this week. The currency stood at $1.5807 against the euro, compared with $1.5793 late yesterday in New York, and was at 105.93 yen from 106.13 yen.

Heightened financial market stress, evidenced by widening credit spreads, declines in high yield exchange-traded funds and a rise in credit default insurance, also increase investor risk- averse behavior and supported gold demand, according to Steel.

Gold for August delivery was little changed at $943.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 1:29 p.m. Singapore time.

Gold for June delivery on the Tokyo Commodity Exchange added 42 yen to 3,235 yen a gram ($950 an ounce) at the same time.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Last Updated: July 2, 2008 01:59 EDT