Gold added to an overnight surge in prices on Tuesday, as escalating geopolitical tensions in the Middle East and a global stock market rout triggered safe-haven bids for the metal.
Spot gold rose 0.1 percent to $1,075.70 an ounce by 0044 GMT. On Monday, the metal had jumped as much as 2.2 percent to a four-week high of $1,083.30, before ending the day up 1.3 percent.
Saudi Arabia widened its rift with Iran on Monday, saying it would end air traffic and trade links with the Islamic republic and demanding that Tehran must “act like a normal country” before it would restore severed diplomatic relations.
Saudi Arabia executed Shi’ite Muslim cleric Nimr al-Nimr on Saturday, provoking protests among Shi’ites across the region. Iranian protesters stormed the Saudi embassy in Tehran, setting fires and causing damage, prompting Riyadh to cut ties and inflaming an already heated rivalry. Also supporting gold was the tumble in global equities.
A 7 percent slide in Chinese shares on Monday sparked by weak economic data rekindled worries over global growth on the first day of trading in 2016, and sent European and US stocks diving.
Bullion, often seen as a alternative investment during times of geopolitical and financial uncertainties, benefited from the risk-averse sentiment along with the Japanese yen and US bonds.
Gold prices, however, gave up some gains as oil prices turned negative after earlier climbing on Saudi Arabia-Iran tensions.
Safe-haven rallies tend to be short-lived and gold could see the focus shift back to US monetary policy soon.
Gold slid 10 percent last year on fears higher US rates would lower demand for the non-interest-paying asset.
San Francisco Federal Reserve President John Williams said Monday he is unfazed by the weak economic data out of China that has spooked Wall Street, and sees three to five US interest rate hikes this year as reasonable given the strength of the US economy.
Hedge funds and money managers boosted their net short position in COMEX gold to a fresh record in the week to Dec. 29, US government data showed on Monday.