Gold prices have extended their two-month high as sustained worries about instability in the Middle East and dovish remarks from England’s central bank prompt investors to buy the precious metal.

Gold for August delivery, the most active contract, on Tuesday rose $US2.90, or 0.2 per cent, to settle at $US1,321.30 a troy ounce on the Comex division of the New York Mercantile Exchange. This was gold’s highest settlement since April 14, when prices closed at $US1,327.50 an ounce.

Gold futures have moved higher in recent weeks, as a violent conflict in Iraq spurred investor appetite for the haven asset. Some investors view gold as a safer bet than Treasury bonds and other assets during periods of geopolitical unrest.

On Tuesday, al Qaeda-linked Islamist militants took complete control of Iraq’s largest oil refinery, dealing a blow to the Iraqi government’s efforts to protect crucial infrastructure vital to the country’s economy.

More than 1,000 people were killed in Iraq between June 5 and June 22, as Islamist insurgents captured large swaths of the country’s north and west, a spokesman for the United Nations human-rights office said.

“The world’s gotten a lot scarier lately,” said Charles Nedoss, a senior market strategist with LaSalle Futures, a brokerage in Chicago.

A more dovish stance from the Bank of England also gave gold prices a boost.

BOE Governor Mark Carney on Tuesday said that the UK’s first interest rate increase since 2009 would depend on the economy, signalling that rates could remain low for longer.

Carney said subdued wage growth points to spare capacity in the economy that should be used up before monetary policy is tightened.

“Investors were caught off guard to hear what sounded like dovish sentiment suggesting that Britain’s labour market has more slack than anticipated which may delay stimulus exit,” traders at TD Securities said in a note.

The more dovish stance burnished gold’s allure as a store of value. Some investors buy gold to hedge against the impact of accommodative monetary policy and as a currency alternative, because the precious metal’s value isn’t linked to a particular government or country.

In other markets, silver prices followed gold higher. Silver for July delivery, the most active contract, rose US12.7 cents, or 0.6 per cent, to settle at $US21.043 a troy ounce on the Comex. This was silver’s highest settlement since March 17, when prices closed at $US21.275 an ounce.

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

London PM Gold Fix: $US1,318.50; previous PM $US1,313.50

Aug $US1,321.30, up $US2.90; Range $US1,314.50-$US1,326.60

Jul silver $US21.043, up 12.7 cents; Range $US20.810-$US21.170

Jul platinum $US1,471.90, up $US15.30; Range $US1,450.40-$US1,476.00

Sep palladium $US830.40, up $US7.75; Range $US819.45-$US834.65