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The other ASX sector benefitting from the oil price surge

It isn’t only ASX energy stocks that are surging ahead after the weekend attack on Saudi Arabia sent the oil price surging by its biggest intra-day gain ever.

While it’s no surprise to see the likes of the Oil Search Limited (ASX: OSH) share price and Beach Energy Ltd (ASX: BPT) share price among the top five best performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index, gold stocks are also running hard with the price of the precious metal jumping over 1% to US$1,504 an ounce.

The increase is modest compared to the near 20% surge in the Brent crude price following news that Saudi Arabia lost around half of its oil output after drones set production facilities alight on the weekend, but this was enough to see ASX gold stocks outperform on speculation that the US was preparing a military response against Iran for the attack.

Gold stocks running higher

The Newcrest Mining Limited (ASX: NCM) share price jumped 3.2% to $34.59, the Northern Star Resources Ltd (ASX: NST) share price added 4.6% to $10.86 and the Regis Resources Limited (ASX: RRL) gained 3.6% to $4.72 a share.

The gold price is shining bright from comments by US President Donald Trump that his country was “locked and loaded” as he waits for confirmation that Iran was behind the co-ordinated attack.

Trump didn’t mention Iran by name but US Secretary of State Mike Pompeo has pointed his finger at the Persian nation even as the Houthi rebels in Yemen claimed responsibility for the attack. The US doesn’t think the rebels have the resources to pull off such an operation while Iran has both the expertise and motivation to strike.

Any escalation of military action will give gold bulls another reason to bid up the price of the yellow metal, which is already on an uptrend thanks to the prospect that interest rates would be cut to near zero in the US and in other countries like Australia.

Gold’s other tailwinds

Further, several central banks including the European Central Bank is undertaking or contemplating quantitative easing (QE) – a tool by which central banks buy assets like bonds and equities to increase liquidity in the financial system.

QE and zero rates during the global financial crisis sent the gold price to record highs of nearly US$2,000 an ounce, and while analysts aren’t predicting a re-test of those levels, military strikes by the US and her allies could quite easily push gold to over US1,600 an ounce.

ASX gold producers with local operations will reap even more gains. The price of the commodity in Australian dollars hit a record high last month due to our weakening currency, and growing global tensions could keep the Aussie on the back foot while supporting the gold price.

This will provide a double tailwind for some in the sector, which could prove to be more enduring than the oil price rally given that the US-China trade war (a positive for gold and a negative for oil demand) will likely outlive any military conflict.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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