PRECIOUS-Gold hits 3-1/2 week high as Yemen air strikes rattle markets – by Jan Harvey (Reuters U.S. – March 26, 2015)

LONDON, March 26 (Reuters) – Gold rallied to a 3-1/2 week high on Thursday and silver rose nearly 3 percent as escalating tensions in the Middle East knocked stocks and the dollar and drove investors into assets seen as lower risk, like bullion and German bonds.

European stocks tumbled 1.3 percent, the dollar fell and oil prices leapt 6 percent after Saudi Arabia and its Gulf Arab allies launched air strikes in Yemen to counter Iran-allied forces besieging the southern city of Aden.

Spot gold hit a peak of $1,219.40 an ounce and was up 1.2 percent at $1,210.30 at 1028 GMT, while U.S. gold futures for April delivery were up $12.70 an ounce at $1,209.70.

That extended a rally in gold to a seventh session, its longest winning streak since 2012. Soft U.S. data earlier this week boosted expectations the Federal Reserve would keep interest rates low for the time being, lifting gold.

“Overnight we have seen risk aversion because of what’s going on in the Middle East, and the dollar is weak, because data has been weaker,” ABN Amro analyst Georgette Boele said. “The combination of dollar weakness and risk aversion is normally one where gold should do well.”

“I still believe we will see lower prices, but we need to have the environment for that, and at the moment the environment is the other way around.”

Expectations that the Federal Reserve is on track to raise interest rates for the first time in nearly a decade knocked gold to four-month lows at $1,142.86 an ounce earlier this month. Higher interest rates lift the dollar and the opportunity cost of holding non-yielding bullion.

It bounced from that low, however, after the U.S. central bank sounded caution over economic growth and the pace of any rate hikes after its policy meet last week.

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