Gold rises 2% as investors look to safety

Production and Markets

In Europe, Gold rose more than 2% in Europe on Monday as the dollar slipped to a fresh two-month low versus the euro, boosting interest in the precious metal as a currency hedge.

Gold was held below US$830/oz for much of the day by technical resistance, but stops were triggered as the rising euro pushed prices higher, leading to a spike to a two-month high of US$842.15/oz.   

Spot gold was quoted at US$840.05/842.05/oz at 1533 GMT, against US$819.90/oz in New York late on Friday.   

Traders are awaiting an announcement on interest rates from the US Federal Reserve on Tuesday, which will have a significant impact on the foreign exchange market, and consequently on gold.

"On the currency side, the high yield has been dragging euro higher," said Pradeep Unni, a senior analyst at Richcomm Global Services.   

"If the Fed slashes rates again, the yield differentials between the euro zone and Fed would widen further."   

The dollar slipped against both the yen and the euro, striking a two-month low against the single currency as traders continued to exit long dollar positions, spooked by uncertainty over the fate of US automakers.   

Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the US currency and tends to move in the opposite direction to it.   

The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday after the Federal Open Market Committee's two-day policy meeting concludes.   

"Everyone is banking on a lower interest rate in the US," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "If the dollar continues to lose value, of course it will benefit gold."   

Oil, the other key external driver of gold, rose nearly 7% to $50 a barrel in afternoon trade. Crude prices have been boosted by expectations for a cut in Opec production later this week.