The price of gold is approaching its highest level in seven years as tensions escalate between the United Stated and Iran.

By Monday afternoon, the spot gold rose 1.6% to reach a high of $1 575.03/ per ounce, while the Brent oil price jumped to a three-month high of above $70 a barrel.

Last week, a US airstrike killed a top Iranian military commander.

Iran promised "severe revenge" as retaliation against the assassination and three Americans have since been killed in Kenya. The Middle East nation also voted to expel US troops over the weekend and said it would no longer adhere to the 2015 nuclear deal limits.

Investors on the defensive

OANDA Europe’s senior market analyst Craig Erlam said the sustained surge in gold price was not surprising because safe havens, like gold, tend to perform solidly in times like these while stocks and other risky assets take a beating.

Hussein Sayed, Chief Market Strategist at online trading platform, FXTM said investors might remain on a defensive mode, which benefits the price of gold, for a while as retaliatory response by Iran might be protracted event.

“In times of political and market uncertainty, there is no better alternative to buying gold and despite looking overbought on the charts, the rally will continue as long as uncertainty stays high,” he said.

Monetary Policy Report

The December Monetary Policy Report said favourable commodity prices support persistent trade surplus.

According to the report, spot gold slipped marginally in October 2019 after trading in the positive territory for four successive months.

The yellow metal inched lower 0.94 per cent to an average price of US$1,494.3 per fine ounce compared to that recorded in September 2019.

The cap to gold prices was buoyed by the initial progress in China-US trade talks which sent equities soaring, while anticipation ahead of major central bank policy meetings provided some support to the precious mineral.

From the beginning of 2019 to September 2019, the precious metal gained 20.6% triggered by expectations that the Federal Reserve would stick to its dovish stance on monetary policy.