* Saudi Arabia cuts ties with Iran
* Dollar drops to 10-week low vs yen, oil prices climb
* Safe-haven demand for gold could be short-lived
* OCBC predicts price drop to $950/oz (Updates prices)
By A. Ananthalakshmi
SINGAPORE, Jan 4 (Reuters) - Gold jumped nearly 1 percent on Monday, bolstered by safe-haven bids following rising geopolitical tensions in the Middle East that knocked equities and the dollar lower.
Saudi Arabia cut ties with Iran on Sunday, responding to the storming of its embassy in Tehran in an escalating row between the rival Middle East powers over Riyadh's execution of a Shi'ite Muslim cleric.
Iran's top leader, Ayatollah Ali Khamenei, predicted "divine vengeance" for the execution of Sheikh Nimr al-Nimr, an outspoken opponent of the ruling Al Saudi family. urn:newsml:reuters.com:*:nL8N14N01H
Spot gold XAU= rose 0.9 percent to $1,069.20 an ounce by 0652 GMT, after earlier hitting a session high of $1,070.20. U.S. gold futures GCcv1 gained 0.8 percent, while spot silver XAG= jumped about 1 percent.
"Gold is being bid up due to the risk-off sentiment in the market," said a precious metals trader in Singapore.
Asian shares and currencies fell on Monday due to tensions in the Middle East and soft Chinese data. Chinese stocks tumbled 7 percent, leading to a trading halt. urn:newsml:reuters.com:*:nL3N14O1PZ
The dollar fell to a 10-week low against the yen, also seen as a safe haven, and slipped from a two-week high against a basket of major currencies. A weaker dollar makes gold cheaper for holders of other currencies. USD/
Brent crude LCOc1 and WTI CLc1 rose about 2 percent on Monday due to the fallout in the Middle East. Higher oil prices support bullion, as gold is seen as a hedge against oil-led inflation. O/R
Investors bet on gold as an alternative investment during times of geopolitical and financial uncertainties, though safe-haven rallies typically tend to be short-lived.
After losing 10 percent last year, gold faces another tough year in 2016, amidst higher U.S. interest rates and a stronger dollar, with analysts predicting further price drops.
The Federal Reserve raised U.S. rates for the first time in December, and is expected to resort to gradual increases in this year. Higher rates dent demand for non-interest-paying gold, while supporting the dollar.
"Even though the rate hike would be gradual, the dollar is going to stay firm. That is going to drag gold prices down," said OCBC analyst Barnabas Gan, who expects gold to drop to $950 an ounce this year.
In a reflection of bearish investor sentiment, assets of SPDR Gold Trust GLD , the top gold-backed exchange-traded fund, fell 0.18 percent to 642.37 tonnes on Thursday, close to a seven-year low.
PRICES AT 0652 GMT
Metal
Last
Change Pct chg
Spot gold
1069.2
8.96
0.85 Spot silver
13.957
0.167
1.21 Spot platinum
881
-8.5
-0.96 Spot palladium
548 -13.63
-2.43 Comex gold
1068.7
8.5
0.8 Comex silver
13.935
0.132
0.96
COMEX gold and silver contracts show the most active months