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(Jan 7): Gold fell from the highest level in more than six years as some appetite for risk crept back into financial markets that had been rattled by the sharp escalation of tensions between the US and Iran.

Prices of the traditional haven – which rallied 2.4% over the past two days to approach US$1,600 an ounce – eased on Tuesday as Asian equities rebounded. The shift came even as Washington committed more troops to the Mideast amid expectations that Tehran will retaliate for the US killing of a senior general.

“Relief can be seen across markets following the knee-jerk reaction toward the eruption of geopolitical tensions,” Pan Jingyi, market strategist at IG Asia in Singapore, said in a note. Still, while bullion has given up some lustre, it’s keeping its position as a favoured hedge in the face of elevated risks, she said.

Bullion investors have been in thrall to developments in the Middle East after a US drone strike killed General Qassem Soleimani last week, triggering threats of reprisals from Tehran. Goldman Sachs Group Inc. said that gold was a better hedge in the crisis than oil. Tensions remain high, with a three-ship US amphibious group ordered to the Persian Gulf region, following the deployment of about 3,500 soldiers to Kuwait last week.

Spot gold was 0.4% lower at US$1,559.31 an ounce at 11.16am in Singapore after rallying to US$1,588.13 on Monday, the highest level since 2013. Prices remain about US$30 above the close on Thursday, the day before the crisis erupted.

Silver fell 0.7%, while palladium lost 0.3% to US$2,026.49 an ounce after reaching a record US$2,032.98 on the week’s opening day. Platinum rose.

There are mixed signals on gold’s path from here. Implied volatility on options – or the likelihood prices will continue the bullish move – jumped to the highest since mid-October, according to a measure calculated by the Chicago Board Options Exchange. However, the metal’s 14-day relative strength index remains above 70, suggesting it’s still overbought.

Investors are also focused on the monthly US jobs report due Friday, which could offer some clues on the economy and the Federal Reserve’s monetary policy path into 2020. On the trade front, China is planning to sign the first phase of its deal with the US in Washington on Jan. 15, according to people familiar with the matter.