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(Bloomberg) -- Gold spiked after Israel conducted airstrikes targeting Iran’s nuclear sites and military leadership, raising fears that hostilities between the two nations may spiral into a wider regional conflict.

Bullion climbed as much as 1.7% on haven demand from investors, before paring some gains. Israeli Prime Minister Benjamin Netanyahu said the operation would continue until the “threat” was removed. Iran vowed a “severe response” to the airstrikes and sent a wave of drones towards Israel.

The US wasn’t involved in Israel’s attacks, according to Secretary of State Marco Rubio, but Iran said it would respond against America. Gold is trading around $80 below a record of $3,500.10 an ounce reached in April. Copper futures, a reliable gauge of sentiment on economic growth and trade, fell 1%.

“The risk of Iranian retaliation, including threats to US bases, adds to the uncertainty and supports haven flows,” said Charu Chanana, a strategist at Saxo Capital Markets Pte. “With markets already on edge and risk sentiment deteriorating, gold is likely to stay bid as a hedge — not just against conflict risk, but also a possible spillover into inflation and volatility.”

The move higher extended a two-day gain, after weak US inflation and jobs data fueled bets that the Federal Reserve will lower interest rates later this year. A report on Thursday showed US producer price inflation remained muted in May, while a separate print showed recurring applications for unemployment benefits rose to the highest since the end of 2021.

Gold has rallied 30% this year, as investors seek hedges against President Donald Trump’s aggressive trade policies and geopolitical tensions, including in Ukraine. Strong demand from central banks and sovereign institutions has also supported prices.

“Gold is probably the best thing that we added to our portfolios in the middle of last year,” said Mark Andersen, co-head of global asset allocation at UBS Switzerland AG on Bloomberg TV. “It’s both helping us when we see rising tensions in the Middle East like today, but also weighing against debt fears, inflation fears, etc.”

Israel’s attack on Iran followed repeated warnings from Netanyahu about striking the OPEC producer and crippling its atomic program. The US and Iran were meant to meet for their next round of nuclear talks on Sunday in Oman, but it’s unclear if those negotiations will happen now.

Iran launched 100 drones in retaliation for the attack, according to Israel. Iranian state television reported that the head of the Islamic Revolutionary Guard Corps, Hossein Salami, and Armed Forces Chief of Staff Mohammad Bagheri were both killed in the strikes.

Spot gold was 1% higher at $3,421.01 an ounce as of 10;06 a.m. in London. The Bloomberg Dollar Spot Index rose 0.3%. Silver was steady, platinum and palladium fell. In energy, Brent oil rallied as much as 13% before paring some of the gains.