Gold price leaps to 12-week high as oil tumbles
London (Jan 26) 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%, with a 6% 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/oz, its strongest since November 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% to $1,113.41/oz at 10.30am GMT, while US gold futures for February delivery were up 0.8% at $1,113.80.
Gold has risen 5% in January as concern over China and global growth hurt equities and industrial commodities, while a supply glut knocked oil prices 18% 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 US 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 the hope 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%. That bodes well for gold. Current ultralow rates cut the opportunity cost of holding nonyielding 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 an increase 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 US monetary policy, gold may be a beneficiary. US interest rate futures indicate the Fed may raise rates only one more time this year."
Among other precious metals, platinum was up 0.9% at $866.74/oz, well off last week’s seven-year trough of $806.31.
Platinum was forecast to average less than $1,000/oz in 2016 for the first time in more than a decade as global growth concern and demand fallout from the Volkswagen scandal gripped the market, a Reuters poll showed.
Palladium was up 0.8% at $493.90 while silver rose 1.1% to $14.39.