NEW YORK/LONDON Gold prices rose sharply for a second straight day on Thursday, briefly trading above $900 an ounce, as investors rushed to buy bullion as a safe haven on fears of more trouble for the financial sector.
However, rising U.S. equities in volatile trade and central banks' liquidity injection into the money market brought the metal down from session highs,. although they did not severely pressure gold.
Spot gold traded at $886.00/889.20 at 3:10 p.m. EDT (1910 GMT), up 2.7 percent from $862.70 an ounce at the nominal New York close on Tuesday.
Bullion hit a session high of $902.60, which marked the strongest level since August 4.
Frank Holmes, chief executive of U.S. Global Investors (GROW.O), which manages $5.1 billion of mutual fund assets, said that gold should benefit from the pent-up weakness of the dollar and more disappointing news out of the financial sector.
Holmes said gold should be trading at $950 an ounce.
U.S. stocks jumped almost 4 percent late in the session on a Treasury plan to resolve the financial crisis. U.S. Treasury Secretary Henry Paulson is talking about a Resolution Trust-type solution to the financial crisis, according to a source.
"What we are seeing right now is investors seeking safe heaven in the gold market," Saxo Bank global products manager Philip Carlsson said. "These market conditions make it difficult to predict about where we are headed."
Gold recorded a very volatile session, trading within a broad $50 range.
Central banks, including the U.S. Federal Reserve, the European Central Bank and the Bank of Japan, announced measures to boost liquidity in the money market.
U.S. gold futures for December delivery settled up $46.50, or 5.5 percent, at $897 an ounce on the COMEX division of the New York Mercantile Exchange.
The precious metal soared $90 an ounce on Wednesday, its biggest one-day dollar rise in history.
Banks are now running scared of lending to each other, analysts said, and risk aversion is rife.
"What is left for people to put their money in?" Afshin Nabavi, head of trading at MKS Finance, asked. "They can't trust the banks. They can't trust insurance companies. They can't trust the stock markets."
Gold is one of the few trustworthy assets left, he said.
Investment demand picked up strongly, with the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, reporting an inflow of 36.46 tonnes, or 6 percent, on Wednesday.
The move brought the trust's holdings to 650.81 tonnes, a two-and-a-half-week high.
Among other precious metals, silver tracked gold higher, rising 5 percent to a session high of $12.99, before easing back to trade at $12.41/12.51, against $12.00 an ounce at the nominal New York close on Wednesday.
Platinum and palladium failed to follow bullion's rise, instead tracking losses in base metals as investors worried about the outlook for demand.
Platinum was at $1,088.50/1,118.50, against its Wednesday finish of $1,118.00, while palladium XPD= was at $230.50/238.50, against $243.00.
(Editing by Walter Bagley)