Oil has recovered well over 61.8% of the recent corrective pullback, suggesting that the dominant uptrend is re-exerting itself. Brent spot crude has probed back above the 115.00 level, bringing oil back within $2 of last week's record high.

New attacks by militants over the weekend against Royal Dutch Shell facilities in Nigeria have further curtailed exports from Africa's largest producer. An oil tanker off the coast was apparently attacked as well and two people were taken hostage.

Iran has rejected the latest round of incentives aimed at getting the country to halt its uranium enrichment program. Iran maintains that their nuclear program is solely for energy generation, while the west claims they are seeking nuclear weapons.

Tensions between the US and Iran have been ratcheting higher in recent months due to mounting evidence that Iran is meddling in Iraq. Washington has accused Teheran of funding, arming and training Shi'ite militiamen that have participated in attacks against US troops.

The US and Iran have engaged in talks over the past year, geared at reducing the violence in Iraq, but the latest round has been shelved.

"Concerning this situation, talks with America will have no results and will be meaningless," said Foreign Ministry spokesman Mohammad Ali Hosseini.

There were briefly two US carrier groups in the Gulf last week as the USS Abraham Lincoln replaced the USS Harry Truman. Defense Secretary Robert Gates said the deployment of the second carrier should be seen as a "reminder" of US military power in the region.

It has also been reported that the Pentagon has ordered new plans for an attack on Iran as the State Department prepares a new ultimatum for the Islamic Republic; essentially stating 'butt out of Iraq, or else.'

Meanwhile, Turkey ramped up its offensive against PKK separatists seeking refuge in Northern Iraq late last week. Turkey bombed militant positions, increasing concerns about supply disruptions in the region.

US Secretary of State Condoleezza Rice is also in the Middle East seeking to jump-start Israeli/Palestinian peace talks. Persistent rocket attacks against Israel by Palestinian militants have hindered the peace process. Israeli settlements in the West Bank have been "particularly problematic" as well.

Gold provides a particularly effective hedge against energy inflation and simultaneously serves as protection against rising geopolitical tensions. Higher oil prices should have a supportive effect on gold. A rebound in the yellow metal above 872.25/877.65 would ease short-term pressure on the downside somewhat, encouraging a move back toward $900.

Gold Market Movers:

US ISM non-manufacturing index for Apr rose to 52.0, above market expectations, versus 49.6 in Mar.

Fed Chairman Bernanke speaks on mortgage foreclosures in New York at 20:30 EDT.

Markets closed in UK for Early May Bank holiday.

Markets closed in Japan for Greenery Day.

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