Gold Jumps to 12-week High as Equities and Oil Tumble

Published: 26th January 2016 06:08 PM  |   Last Updated: 26th January 2016 06:08 PM   |  A+A-


Gold jewellery is seen displayed for sale at a shop in a gold market in Basra, southeast of Baghdad February 14, 2015. REUTERS

LONDON: Gold rallied to its highest in nearly 12 weeks on Tuesday as a fresh rout in world stocks and a slide in oil prices battered appetite for risk, sending investors fleeing to alternative assets.

European stocks fell nearly 1 percent, with a 6 percent slump in Chinese shares and a slide in oil prices to less than $30 a barrel triggering a fresh bout of selling.

That sent gold to a peak of $1,117.60 an ounce, its strongest since Nov. 4. The metal was supported by technical signals after closing on Monday above its 100-day moving average, a firm line of resistance earlier this year.

Spot gold gained 0.5 percent to $1,113.41 an ounce at 1030 GMT, while U.S. gold futures for February delivery were up 0.8 percent at $1,113.80.

Gold has risen 5 percent in January as concerns over China and global growth hurt equities and industrial commodities, while a supply glut knocked oil prices 18 percent lower.

"As long as the Chinese stock market continues its downward push, gold will continue benefiting," Natixis analyst Bernard Dahdah said. "It is creating a climate of global uncertainty."

The U.S. Federal Reserve is expected to take notice of the macroeconomic headwinds from China at a two-day policy meeting starting later in the day, boosting hopes that it may go easy in increasing interest rates further.

The Federal Open Market Committee is widely expected to leave its federal funds rate unchanged at 0.25-0.50 percent.

That bodes well for gold. Current ultra-low rates cut the opportunity cost of holding non-yielding bullion, while keeping a lid on the dollar, in which it is priced.

The probability of another rate increase at the next Fed meeting in March has eased, with some analysts expecting a rise to be postponed to later in the year.

"We detect investor uncertainty that global financial turbulence may impact the real economy," HSBC said in a note.

"If this impacts U.S. monetary policy, gold may be a beneficiary. U.S. interest rate futures indicate the Fed may only raise rates one more time this year."

Among other precious metals, platinum was up 0.9 percent at $866.74 an ounce, well off last week's seven-year trough of $806.31.

Platinum is forecast to average less than $1,000 an ounce in 2016 for the first time in more than a decade as global growth concerns and demand fallout from the Volkswagen scandal grip the market, a Reuters poll showed.

Palladium was up 0.8 percent at $493.90 while silver rose 1.1 percent to $14.39.

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