Gold rose to $924.30/925.10 from $921.35/922.55 an ounce late in New York on Tuesday, when the precious metal shed 1 per cent to a near two-week low of $912.50 as oil prices dropped.

Iranian state media said on Wednesday the Islamic Republic had test-fired missiles capable of reaching Israel and US bases in the Middle East.

Oil prices climbed more than $2 as a result to a session high of $138.28, making up some of Tuesday’s $5 loss.

Rising oil prices increase gold’s appeal as an inflation hedge and boost sentiment towards commodities as an asset class.

Gold prices are also climbing on safe-haven buying as a result of rising tension in the Middle East.

Gold benefits directly from geopolitical tension, so it would have received support from that news, said Merrill Lynch metals strategist Daniel Hynes.

The dollar also weakened in the wake of the Iran news, although it later recovered some of those losses as traders said the currency’s reaction had been overdone.

The US currency was trading slightly softer on the day. A lower dollar tends to benefit the precious metal, which is often bought as a hedge against currency weakness and so moves in the opposite direction to the greenback.

Traders are awaiting further moves in oil resulting from US stockpile data due at 1430 GMT, which may give fresh direction to gold.

The precious metal has had a poor start to the week, trading more than 2 percent lower at its weakest point as the dollar has ticked up and oil prices have dropped.

However, fears over inflation and financial market instability are supporting gold.

The metal is under pressure from the recent firming in the US dollar and crude’s two-day decline, but supported by concerns about financial market weakness, inflation and the ongoing effects of the credit crunch, said UBS analyst John Reade in a note.

Among other precious metals, spot platinum firmed to $1,958.50/1,978.50 an ounce from $1,940.50/1,960.00 late in New York.

It hit a two-month low of $1,936.50 on Tuesday on fears a slowing US economy could weaken demand from car makers.

Spot palladium was little changed at $439.00/447.00 against $437.50/445.50 on Tuesday.—Reuters