Gold prices hit a 4-week high at the PM Fix in London on Wednesday, settling at $666.75 per ounce – the highest level since March 1st.
"Given the geopolitical tensions and the inflationary effects of higher oil prices," says Investec Australia, "we still see pressure on gold prices as favoring an upward move."
Crude leapt $5 per barrel inside 7 minutes as New York reached the close on Tuesday, driven by rumors that the UK had attempted to rescue the 15 marines seized by Iran last weekend.
An exercise by the US Navy – the largest show of force in the Gulf since the invasion of Iraq four years ago – also led to rumors that conflict had broken out.
"It's an indication of the level of concern people have around the possibility of a military conflict in the Middle East," says Andrew Harrington, a commodities analyst at Australia & New Zealand Banking Group in Sydney.
The spike soon fell back, but Brent crude traded in London rose to $66 per barrel by mid-afternoon. Gold prices hit key resistance levels against both Euros and Sterling.
For British investors looking to buy gold, the metal touched £340 at the Asian opening. For French, German and Italian investors looking to trade gold, it briefly broke above €500 per ounce for the first time since March 2nd.
"Trading volume is very thin. The Japanese are not on the buying side right now," said one Hong Kong to Reuters earlier.
Overnight, the gold futures contract for Feb. '08 delivery traded in Tokyo rose to touch $676.50 per ounce, another one-month high.
"I think $662 will provide a very solid short-term support [for spot gold prices] while resistance is around $677," said the dealer.
In Europe and the US today, gold traders will be watching for Fed chairman Ben Bernanke's comments to the US Congress, due to start at 15:30 London time.
Meantime, a slew of global data shows the UK economy slowing, durable goods orders in the US sharply lower, and Eurozone money supply rising to a 17-year high.
The Dollar has slipped against all major currencies, pushing the Euro to $1.3370 at one point.
But most spectacular has been the slide in the high-yielding currencies of Australia and New Zealand.
Both of the Down Under Dollars dropped 1% versus the Yen overnight.
"The mounting risk is starting to kick into this price action," said Noriyuki Kato, a manager at State Street Global Markets in Tokyo.
"This could be another wave of risk reduction. It happened before, and it looks like it will be happening again."
What might risk-reduction mean for the New Zealand Dollar? Sterling faces the same threat...as do UK house prices...European corporate bonds...and US stocks.