Gold hits three-week high as dollar, stocks sink

Gold rose to three-week highs on Tuesday as the dollar sank back to a near 8-month low, weighed down by expectations that the Federal Reserve will keep US interest rates lower for longer.

The US currency has been on the back foot since Fed Chair Janet Yellen last month doused expectations for near-term hikes in US interest rates, lifting dollar-priced assets, such as gold.

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Spot gold was up 0.2% at $1,259.40 an ounce at 0930 GMT, having earlier touched a high of $1,262.60 an ounce. US gold futures for June delivery were up $3.10 an ounce at $1,261.10.

Silver also broke above $16 an ounce for the first time in nearly a month, peaking at $16.06 before edging back to $16.03, up 0.8%. The metal rallied 3.6% on Monday, its biggest one-day rise in more than six months.

"Negative yields in my opinion remain the key reason for buying gold, and silver. That story will not go away," Saxo Bank's head of commodities research Ole Hansen said.

"(Gold) found the expected resistance at $1,255 and it was only when silver took off that it managed to get through. Silver ETF holdings have risen strongly this past month while gold has been almost flat. That could indicate some switch in focus to silver, and the move yesterday highlighted that," Hansen added.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, hit its lowest in three weeks as silver outperformed gold. An ounce of gold now buys 78.6 ounces of silver, compared with 83.3 ounces in late February.

Speculation that interest rates will stay low also helped gold and silver in their own right. Rising rates lift the opportunity cost of holding non-yielding assets such as bullion.

Scaled-back expectations for further monetary tightening this year helped gold to its best quarter in nearly 30 years in the three months to March, after the US central bank raised rates in December for the first time in nearly a decade.

Gold also benefited from weakness in stock markets, as a downbeat first batch of corporate results prodded European stock markets lower on Tuesday.

"The more people mistrust these other markets, the more gold benefits. So the future of the move in bullion is intrinsically linked to the performances of all the other markets," Marex Spectron said in a note.

Among other precious metals, platinum was up 0.4% at $993.25 an ounce and palladium was up 1.5% at $553.55 an ounce.