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Gold surges to highest level since June as investors flock to safe-haven

Published 02/08/2016, 01:00 PM
Updated 02/08/2016, 01:09 PM
Gold soared more than $35 an ounce on Monday to close above $1,195

Gold soared more than $35 an ounce on Monday to close above $1,195

Investing.com -- Gold surged more than 3% at session-highs on Monday, rising to its highest level since June, as investors piled into the safe-haven asset amid a continuing rout in major banking stocks throughout the world.

On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,164.60 and $1,199.50 an ounce, before settling at $1,195.50, up 37.80 or 3.27%. At one point on Monday, gold reached its highest level since June 19, the last day it traded above $1,200. The precious metal has closed higher in five straight sessions and six of the last seven, soaring by nearly 7% over the last week. More broadly, gold futures are up by more than 12% since early-December when they fell to a six-year low.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,222.60, the high from May 18.

A host of stocks among prominent European financial firms, including Deutsche Bank (DE:DBKGn) AG NA O.N. (N:DB), Commerzbank (DE:CBKG), HSBC Holdings PLC (N:HSBC) and BNP Paribas SA (PA:BNPP), plummeted anywhere between 3 and 7% on Monday, amid mounting concerns on the impact of negative interest rates and persistently low oil prices. Several days after soaring more than 8% last Wednesday on hopes of a dramatic reduction in OPEC and non-OPEC production, crude slipped back below $30 a barrel, applying further pressure on banks and the high-yield market. Last month, JPMorgan Chase & Co (N:JPM), Citigroup Inc (N:C) and Wells Fargo & Company (N:WFC) all warned that they could incur credit losses in the range of hundreds of millions in oil and gas loans later this year if oil prices continued to weaken.

In Europe, the sell-off in bank stocks dragged down the major indices, as the ALPS STOXX Europe 600 (N:STXX), France CAC 40 and Recon Capital DAX Germany (O:DAX) all fell by more than 3% on Monday, pushing the overall indices to their lowest levels in 16 months. It came as the cost of insuring the subordinate debt of European financial firms jumped by more than 12% on the session to its highest level since April 2013. The cost of insurance for both subordinate and senior debt for European banks has skyrocketed more than 40% in the last week.

Gold is viewed as a safe-haven asset for investors in periods of heightened financial instability.

While markets in China remained closed on Monday for the Lunar New Year holiday, the celebrations started off inauspiciously after the People's Bank of China reported on Monday that its foreign currency reserves declined by $99.5 billion in January, falling to the lowest level since 2012. Last month, the total amount of Chinese foreign reserves fell for a third consecutive month, as the PBOC continued to unload large amounts of the dollar in an effort to prop up the yuan and prevent capital outflows.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell back to an intraday low of 96.67 on Monday, retreating to near three-month lows from last week. On Friday, the U.S. Commodities and Futures Trading Commission (CFTC) reported that long positions in the dollar fell for the week ending on Jan. 2, marking the sixth straight week of such declines.

Investors await an appearance by Federal Reserve chair Janet Yellen before the House Financial Services Committee on Wednesday morning for further indications on the pace of tightening by the Fed over the next several months. A spate of dovish comments from Fed policymakers on the possibility of a gradual upward moves in recent weeks, has led to heightened fears among banks of declining profits due to lower lending growth.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery gained 0.577 or 3.90% to 15.355 an ounce.

Copper for March delivery fell 0.014 or 0.66% to 2.089 a pound.

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