Gold soars to three-month high

GOLD prices have soared, up two per cent to a three-month high, amid jitters over rising political tension in the Middle East.

GOLD futures have risen to their highest level in three months as investors sought a haven from escalating political instability in the Middle East and as worries about US government debt resurfaced.

The most actively traded contract, for December delivery, rose $US27.10, or 2 per cent, to settle at $US1,420.20 a troy ounce on the Comex division of the New York Mercantile Exchange. This was gold's highest settlement since May 14, when futures closed at $US1,424.50 an ounce.

US Defence Secretary Chuck Hagel on Tuesday said the US and its key allies have concluded that Syria used chemical weapons last week.

He said the Department of Defence has presented options to President Barrack Obama.

"We are ready to go," Hagel said.

French President Francois Hollande on Tuesday vowed to "punish" the regime of Syrian President Bashar al-Assad for the likely use of chemical weapons.

"This mass chemical massacre cannot go unanswered," Hollande said.

UK Prime Minister David Cameron said any British action in Syria would have to be legal, proportionate and aimed at deterring the future use of chemical weapons.

"In this environment, it's very easy to look at gold as a short-term fear barometer," said Adam Klopfenstein, senior market strategist with Archer Financial Services LLC.

Klopfenstein added that Syria is the catalyst behind gold's rally on Tuesday as the uncertainty surrounding the situation is leading some investors to wager that gold futures will continue to rise.

Investors often seek out the safety of hard assets like gold in times of geopolitical instability as a means of safeguarding their wealth.

Gold futures were also buoyed by renewed concerns about US government debt after the Treasury Department said late Monday it would hit its borrowing limit in mid-October, sooner than many expected.

"The budget negotiations are focal point for gold because you have another fiscal cliff possible," said George Gero, senior vice president at RBC Capital Markets Global Futures.

Gero said that another budget standoff could have broad consequences for global markets, and some investors were already looking for a way to offset those risks by buying gold.

Gold is widely considered an alternative to fiat currencies and investors often buy the metal to hedge against the potential impact of fiscal or monetary policy decisions.

Silver prices followed gold's lead, settling at their highest level in four months as investor appetite for precious metals spilled over into the rest of the complex.

Silver for September delivery rose 64.1 US cents, or 2.7 per cent, to settle at $US24.651 a troy ounce. This was the highest settlement price since April 12.

Silver is often called gold's cheaper cousin as traders who can't afford gold's $US1,400 price tag opt to buy the grey metal instead.

Settlements (ranges include open-outcry and electronic trading):

London PM Gold Fix: $1,419.25; previous PM $1,377.50

Dec gold $1,420.20, up $27.10; Range $1,395.20-$1,424.00

Sep silver $24.651, up 64.1 cents; Range $23.980-$24.715

Oct platinum $1,532.10, down $12.40; Range $1,522.60-$1,558.00

Sep palladium $749.15, up $3.10; Range $744.85-$753.00