Gold ended flat on Wednesday following a brief rally to one-month highs after Israel said two Iranian warships planned to sail through the Suez canal en route to Syria, calling the move a “provocation”.

Israel’s comment gave a further safe-haven boost to gold, already underpinned by geopolitical tensions as anti-government protests inspired by revolts that toppled rulers in Tunisia and Egypt gain pace around the Arab world.

“The gold market is starting to pay more attention to the external geopolitical events rather than the positive economic data, which would have kept the market sharply lower,” said Frank McGhee, head precious metals trader at Integrated Brokerage Service.

Analysts said technical buying continued to support bullion after it breached key resistance at its 50-day and 100-day moving averages on Tuesday.

Spot gold hit a one-month high of $1,381.84 an ounce after Israel’s announcement, before trimming gains. It was up 0.1 percent at $1,374.20 by 2:21 p.m. EST (1921 GMT).

The U.S. gold contract for April delivery settled up $1 at $1,375.10 an ounce, with volume about 40 percent below its 30-day moving average. That was in line with recent lower-than-normal turnover, a possible sign of dwindling interest.

Bullion’s appeal as a safe-haven investment could increase due to heightened tensions in the Middle East and North Africa.

The Iranian naval contingent described by Israeli Foreign Minister Avigdor Lieberman would pose no significant military threat to Israel but could spell the closest-ever encounter by the forces of the two old foes, who are geographically distant.

Meanwhile, anti-government protests were reported in tightly controlled oil producer Libya, sandwiched between Egypt and Tunisia, while new protests erupted in Bahrain, Yemen and Iran.

Gold remained in a relatively narrow trading range as the Middle Eastern tensions and concerns over the inflation outlook underpinned prices, while a bigger appetite for higher-yielding assets curbed fresh buying interest.

“There are a number of conflicting signals for what is usually driving gold,” said Peter Fertig, a consultant at Quantitative Commodity Research. “This is currently leading to a bit more sideways trading.”

U.S. data showed housing starts and the producer price index for January came in above expectations.

Core wholesale prices in the United States rose at their fastest rate in more than two years, raising some concerns about inflation, but economists said the recovery was too weak for a big spike in consumer prices.

Gold also benefited as the dollar slumped after the Israeli foreign minister’s comments. A potential conflict in the Middle East could hurt the U.S. economy, weighing on the greenback.


Gold prices are taking some support from a reduction in outflows from physically backed exchange-traded funds, whose gold holdings fell significantly in January.

Holdings of the largest, New York’s SPDR Gold Trust, eased to a nine-month low on Tuesday, but outflows this month so far are well below January’s levels.

Meanwhile, an Industrial and Commercial Bank of China executive said Chinese demand for physical gold and gold-related investments was growing at an “explosive” pace and set to remain robust amid inflation concerns.

Among other precious metals, silver eased 0.3 percent to $30.66 an ounce. Platinum slipped 0.1 percent to $1,824.50, while palladium inched up 0.1 percent to $835.72, having touched a 10-year high at $847 on Tuesday.


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