By Ira Iosebashvili and Christian Berthelsen 

Investors are piling into gold, seeking shelter amid concerns that a turn toward negative interest rates in some countries is threatening to destabilize the global financial system.

Gold futures soared 4.45% to $1,247.90 an ounce on Thursday, its highest level in a year. Prices are up nearly 18% in 2016, making the precious metal one of the top performers this year after it lost 40% during the previous four years.

One of the biggest factors behind gold's rise has been negative rates. The Bank of Japan last month joined a growing number of central banks, including the Swiss National Bank and the European Central Bank, when it introduced negative interest rates in an effort to spur consumer spending. Sweden's central bank said on Thursday it was moving interest rates further into negative territory, and warned it could cut again. Canadian officials are also weighing cutting borrowing costs below zero.

And Federal Reserve Chairwoman Janet Yellen said this week the U.S. central bank is studying the feasibility of pushing short-term interest rates into negative territory if needed.

Gold typically struggles to compete with any yield-bearing investments when interest rates rise, but that disadvantage matters less when borrowing costs are negative, opening the path for more investors to hold the metal.

Its rally is another sign of how fearful some gold investors have become that central banks are increasingly powerless to prevent a financial meltdown, a concern that has boosted the value of haven assets such as the Japanese yen, Treasurys and gold.

"The fear trade is very strong," said Peter Hug, global trading director at Kitco Metals. "People are selling and the cash has got to go somewhere. Right now, it's going into gold."

Gold mining stocks have been among the market's top performers. Canadian miner Barrick Gold Corp., the world's largest gold miner by output, has surged 63% year to date. Newmont Mining Corp. is up about 40%, and Randgold Resources Ltd. has gained 48% this year. Exchange-traded funds that buy gold are reporting their biggest inflows in more than a year.

At the same time, investors are fleeing European and U.S. banking stocks over worsening financial-market conditions and concern about exposure to falling oil prices.

"Anytime there are concerns about the financial system, you're going to have investors who at the very core distrust banks, and therefore would rather seek the safety of gold," said Joe Kalish, chief global macro strategist at Ned Davis Research, a Venice, Fla. research firm for institutional investors.

Speculative interest in gold has become more positive in recent weeks. Net bets in the $60 billion a day gold-futures market by hedge funds and other investors turned bullish in January, after being positioned for a decline in gold prices since mid-November, regulatory data showed.

David Einhorn's Greenlight Capital Inc. said in a January investor letter that gold was among its biggest wagers. Mr. Einhorn, a longtime investor in gold, has said previously that he holds the metal "in case things go haywire."

The gold rally could peter out if economic growth picks up, or if central banks move away from negative rates. Even some famous investors have stubbed their toe trying to gauge gold's direction.

John Paulson, who became a billionaire during the financial crisis by betting against the housing market, allocated roughly $3 billion of his assets under management and as much as $250 million of his own money to gold, The Wall Street Journal previously reported. He dialed that bet back about three years ago after suffering losses. Gold prices had turned down when inflation remained tame and crisis concerns eased.

But gold historically rallies when interest rates are expected to remain low or decline, and especially when U.S. interest rates, adjusted for inflation, turn negative. Gold jumped from less than $1,100 an ounce to more than $1,400 during 2010, a time when real rates on the two-year note fell as low as minus-1.3%. Real rates have been edging back toward zero for the last year.

Gold performs well during periods of extreme duress. Fear that the financial system was teetering on the verge of collapse after the 2008 bankruptcy of investment bank Lehman Brothers Holdings Inc. sent gold on a three-year tear where prices rose 160%.

Despite last year's periodic stock-market volatility, gold prices finished down 10.5% in 2015. The market anticipated that the Fed would raise rates more aggressively in 2016, which was expected to support the dollar and was bearish for gold.

But after the Fed raised rates a quarter point in December, markets now indicate that the chances of the central bank acting again this year are dwindling.

Many investors believe a weaker dollar will continue to buoy gold. The U.S. currency has dropped 4% against a basket of currencies since Feb 1. Gold, which is priced in dollars, becomes affordable to foreign investors when the U.S. currency declines.

The dollar may still have further to fall, according to data from the Peterson Institute for International Economics, which judges currencies based on countries' current-account balance and says the greenback remains one of the world's most overvalued currencies.

Some outflows from emerging markets, under pressure from low commodity prices and weakening currencies, have made their way to gold. Citigroup Inc. estimates $2 billion in investment capital flowed into gold holdings through the end of January, exiting U.S. stocks and emerging markets, said Aakash Doshi, a senior strategist at the New York bank.

Part of the flows may be coming from China, where investors are looking to protect assets from further drops in the stock markets and the yuan, analysts said. Gold prices in Shanghai have traded at a premium to those in London for most of January, indicating elevated demand, according to Bart Melek, head of commodity strategy at TD Securities.

Juliet Chung contributed to this article.

Write to Ira Iosebashvili at ira.iosebashvili@wsj.com and Christian Berthelsen at christian.berthelsen@wsj.com

(END) Dow Jones Newswires

February 11, 2016 17:44 ET (22:44 GMT)