By Ese Erheriene 

LONDON--The price of gold surged more than 2% on Thursday, benefiting from continued market turbulence and interest rates which are staying low or slipping further into negative territory.

Spot gold was up 2.6% at $1,228.31 a troy ounce in morning European trade, moving past $1,200 an ounce to reach its highest level since mid-May last year.

The precious metal has now gained 15% since the first trading session of the year, with macroeconomic volatility encouraging bullish investor sentiment for this safe-haven asset.

Gold is also becoming more competitive against yield-paying investments as some central banks move into negative interest rates, while expectations of a U.S. rate rise this year recede.

On Thursday, a surprise move by the Swedish central bank to push its main interest rate further into negative territory stoked further concern from investors over returns on their assets. This followed a testimony from Federal Reserve Chairwoman Janet Yellen the day before, which set a more dovish tone on interest rates than many investors had hoped for.

"We used to say that gold's Achilles' heel was that it didn't pay any interest," said Matthew Turner, a precious metals analyst at Macquarie. "Well, not paying any interest is better than paying negative interest."

Ms. Yellen's comments also put pressure on the dollar. The WSJ Dollar Index was recently down 0.19% at 88.72. A cheaper dollar makes gold cheaper to buy for most investors.

Demand for gold was also stoked by a fall in global stocks. On Thursday, Fed dovishness and falling oil prices reignited fears about the state of the global economy, which spurred demand for safe-havens like gold.

"Any risk-off [mood] will mean that gold gets a bid and that will filter to the [other precious metals]," said Jim Reid, a strategist at Deutsche Bank AG.

Looking ahead, the metal is expected to continue to be supported by economic risks around central banks.

"There's so much uncertainty around and obviously gold does well when central banks seem to be losing control," said Mr. Turner. "I don't quite think they're losing control, but they are certainly trying ever more innovative policies."

According to a report by the World Gold Council, global gold demand was broadly flat last year, but a fall in supply could be positive for the market going forward.

Among the other precious metals, spot silver was up 2.3% at a three-and-a-half-month high of $15.605 an ounce, spot platinum was up 1.7% at $946.41 an ounce and spot palladium was up 0.9% at $525.40 an ounce.

Write to Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

February 11, 2016 07:34 ET (12:34 GMT)