London: Gold touched a new three-month high on Tuesday as concerns about the global economy and a further drop in the oil price pushed investors towards safe-haven assets.
Weak Chinese manufacturing data on Monday underscored the challenges for the world economy and increased volatility in oil and other assets is supporting gold.
“In the near term gold is finding some support in the dovish tone from central banks last week, notably the Fed and the Bank of Japan,” said Jens Pedersen, senior analyst at Danske Bank.
The Bank of Japan’s decision last week to introduce negative interest rates helped lift the precious metal and it could see more gains as some central banks may be forced into easing monetary policy further this year to spur growth.
Spot gold touched $1,130.11 (Dh4,150.90) an ounce, its strongest since November 3, and was trading down 0.3 per cent at $1,125.64 by 1006 GMT.
A break above $1,136 could lift gold towards $1,157, a level reached in late October, said ScotiaMocatta technical analysts.
US gold for April delivery was off 0.2 per cent at $1,126 an ounce.
Gold is typically the asset of choice in times of uncertainty. It posted its best monthly jump in a year in January, and has gained 6 percent so far in 2016, after falling 10.4 per cent last year.
The Federal Reserve’s statement after its policy meeting last week that it will closely monitor the global economy and financial markets lifted gold, as it underlined expectations that US policymakers may take it slow in raising interest rates this year.
The US economy could suffer if recent volatility in financial markets persists and signals a slowdown in the global economy, Federal Reserve vice-chairman Stanley Fischer said on Monday.
The opportunity cost of holding the metal would rise in a higher interest rate environment.
The upside has been limited however as the Fed still kept the door open for a rate hike in March.
“If the Fed had somehow closed the door on March due to the turmoil we could have seen gold shoot higher,” Pedersen said.
Reflecting growing confidence in gold, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose to 21.9 million ounces on Monday, the most since November 3.
With interest rates close to zero, the “only option is to move either towards zero or negative rates as the Japanese and selected European countries are already doing in a desperate attempt to force banks to lend”, INTL FCStone analyst Edward Meir wrote to clients.
“Whatever the case, this should be constructive for gold.” Spot platinum fell 1.2 per cent to $859.61 an ounce, palladium also slipped 1.2 per cent to $494.25 and silver dropped 0.3 per cent to $14.28.
