Gold Prices Rise as US Prepares to Attack Syria

Gold prices ended higher in August as the precious metal remained a safe investment hedge amid uncertainty surrounding a possible US-led military strike on war-torn Syria.

Spot gold hovered around $1,394 (£900, €1,055) an ounce at 3:20 pm EDT on 30 August. Gold prices ended 0.1% lower at the end of the week but for the month as a whole gained about 5.5%.

US gold futures for December delivery hovered at $1,396 an ounce, preliminary Reuters data showed.

Earlier in the week, gold prices rallied sharply as the US and its allies prepared to strike the strongholds of Syrian President Bashar al-Assad.

Prices dropped on Thursday and on Friday on news that the planned military action may be delayed as the US and its allies await the UN weapons inspectors' report on alleged use of chemical weapons in Syria.

Analysts warned that gold prices could drop in the near-time if US strikes in Syria do not affect crude oil supplies from the Middle East, which produces more than one-third of the world's oil.

In addition, the prospect of the US Federal Reserve tapering its $85bn bond-buying stimulus as early as September could adversely impact gold prices.

"By early next week, Syrian strike or no strike, we could see investor focus start to shift towards the upcoming Fed meeting where we suspect that the central bank will go through with a limited reduction in its bond buying program," Edward Meir, analyst at INTL FC Stone, wrote in a note.

"If our assessment is correct, this should generate a short-lived negative response in most commodity markets," said Meir. The Fed's FOMC is due to meet on 17 September.

India Crisis

Meanwhile, in India, the country's central bank proposes to ask commercial banks to buy gold from the public and divert it to the refining industry, reported Reuters.

The move could help trim gold imports into India, in turn reducing the country's huge current account deficit (CAD), the broadest measure of trade, and help arrest the decline in the value of the rupee.The currency has lost about 20% of its value since May.

India's current account deficit, at 4.9% of the GDP, is the third highest in the world, according to a Morgan Stanley report. At $98bn (£63bn €74bn) it trails only the UK ($106bn) and the US ($473bn).

India, the leading buyer of the precious metal, has imposed restrictions on gold imports and hiked the duty on gold three times this year to narrow its widening trade deficit.