LONDON Gold rallied to its highest in nearly 12 weeks on Tuesday as a rout in Chinese equities overnight hurt appetite for risk, sending investors fleeing to alternative assets.
European stocks fell 1 percent in early trade after a 6 percent slump in Chinese shares and a slide in oil prices to less than $30 a barrel triggered a fresh bout of selling, sending gold to a peak of $1,117.60 an ounce.
The metal later pared those gains as stocks steadied in Europe and oil swung back into positive territory, but prices remained underpinned, taking support from technical signals after closing on Monday above their 100-day moving average, a firm line of resistance earlier this year.
Spot gold was up 0.4 percent at $1,111.70 an ounce at 1245 GMT, while U.S. gold futures for February delivery were up 0.6 percent at $1,112.10.
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 on 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."
China's net gold imports for December via main conduit Hong Kong surged to the highest in more than two years, data showed on Tuesday, as investors lost faith in collapsing stock markets and a weakening currency and snapped up bullion.
Among other precious metals, platinum was up 0.5 percent at $862.31 an ounce, well off last week's seven-year trough of $806.31. Palladium was up 0.8 percent at $493.80, while silver was up 0.7 percent at $14.34.
(Additional reporting by Manolo Serapio Jr. in Manila; Editing by Alison Williams)
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Updated Date: Jan 26, 2016 20:15:11 IST