* Saudi Arabia cuts ties with Iran
* Dollar drops to 10-week low vs yen, oil prices climb
* Safe-haven demand for gold could be short-lived
* OCBC predicts price drop to $950/oz
(Updates prices)
By A. Ananthalakshmi
SINGAPORE, Jan 4 (Reuters) - Gold jumped nearly 1 percent on
Monday, bolstered by safe-haven bids following rising
geopolitical tensions in the Middle East that knocked equities
and the dollar lower.
Saudi Arabia cut ties with Iran on Sunday, responding to the
storming of its embassy in Tehran in an escalating row between
the rival Middle East powers over Riyadh's execution of a
Shi'ite Muslim cleric.
Iran's top leader, Ayatollah Ali Khamenei, predicted "divine
vengeance" for the execution of Sheikh Nimr al-Nimr, an
outspoken opponent of the ruling Al Saudi family.
Spot gold rose 0.9 percent to $1,069.20 an ounce by
0652 GMT, after earlier hitting a session high of $1,070.20.
U.S. gold futures gained 0.8 percent, while spot silver
jumped about 1 percent.
"Gold is being bid up due to the risk-off sentiment in the
market," said a precious metals trader in Singapore.
Asian shares and currencies fell on Monday due to tensions
in the Middle East and soft Chinese data. Chinese stocks tumbled
7 percent, leading to a trading halt.
The dollar fell to a 10-week low against the yen, also seen
as a safe haven, and slipped from a two-week high against a
basket of major currencies. A weaker dollar makes gold cheaper
for holders of other currencies.
Brent crude and WTI rose about 2 percent on
Monday due to the fallout in the Middle East. Higher oil prices
support bullion, as gold is seen as a hedge against oil-led
inflation.
Investors bet on gold as an alternative investment during
times of geopolitical and financial uncertainties, though
safe-haven rallies typically tend to be short-lived.
After losing 10 percent last year, gold faces another tough
year in 2016, amidst higher U.S. interest rates and a stronger
dollar, with analysts predicting further price drops.
The Federal Reserve raised U.S. rates for the first time in
December, and is expected to resort to gradual increases in this
year. Higher rates dent demand for non-interest-paying gold,
while supporting the dollar.
"Even though the rate hike would be gradual, the dollar is
going to stay firm. That is going to drag gold prices down,"
said OCBC analyst Barnabas Gan, who expects gold to drop to $950
an ounce this year.
In a reflection of bearish investor sentiment, assets of
SPDR Gold Trust, the top gold-backed exchange-traded fund,
fell 0.18 percent to 642.37 tonnes on Thursday, close to a
seven-year low.
PRICES AT 0652 GMT
Metal Last Change Pct chg
Spot gold 1069.2 8.96 0.85
Spot silver 13.957 0.167 1.21
Spot platinum 881 -8.5 -0.96
Spot palladium 548 -13.63 -2.43
Comex gold 1068.7 8.5 0.8
Comex silver 13.935 0.132 0.96
COMEX gold and silver contracts show the
most active months
(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and
Sunil Nair)