Gold rose over 1% on Monday to its highest in more than seven years as dismal US data underscored how badly the COVID-19 pandemic has damaged the world's top economy, while palladium soared over 9% on the better-than-expected demand outlook.
Spot gold was up 1.1% at $1,760.85 per ounce by 0402 GMT, after rising to its highest since Oct. 12, 2012 at $1,763.51. U.S. gold futures gained 0.8% to $1,770.50.
"Markets are pricing in that the (economic) recovery is going to be a little slower than previously expected, and that's probably going to require an environment of lower rates," said IG Markets analyst Kyle Rodda, adding that Friday's "really poor" U.S. economic data was the big catalyst.
Data out on Friday showed U.S. retail sales and industrial production both plunged in April, putting the economy on track for its deepest contraction since the Great Depression.
Federal Reserve Chairman Jerome Powell said a U.S. economic recovery may stretch deep into next year and a full comeback may depend on a coronavirus vaccine.
The Bank of England is also looking more urgently at options such as negative interest rates as the economy slides into a deep coronavirus slump, according to its chief economist.
Gold is considered an attractive investment during times of political or economic turmoil. Lower interest rates also reduce the opportunity cost of holding non-yielding bullion.
Adding to the bleak economic scenario was renewed Sino-U.S. friction, with China's commerce ministry on Sunday saying it was firmly opposed to the latest rules by the United States against Huawei and would take all necessary measures to safeguard Chinese firms' rights and interests.
"There is increased volatility as the rhetoric is becoming very hot, and especially from the United States. That is manifesting some weakness in growth-sensitive markets, and in particular China-sensitive markets," Rodda said.
Reflecting investor sentiment, SPDR Gold Trust holdings, the world's largest gold-backed exchange-traded fund, rose 0.8% to 1,113.78 tonnes on Friday.
Among other precious metals, palladium was up 4.2% at 1,980.25, having surged more than 9% earlier in the session.
"Both palladium and platinum are rising sharply after the World Platinum Investment Council (WPIC) provided their updated metals forecast," said Edward Moya, a senior market analyst at broker OANDA.
"The WPIC highlighted that the outlook for both metals is better than expected, and that the COVID-19 impact could be less (than expected)," he said, adding that the market was moving on optimism over autocatalyst demand in China and America.
Platinum gained 0.8% to $804.43, while silver rose 3.3% to $17.17.
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