NEW YORK (Reuters) - Gold prices vaulted 3 percent on Thursday to near an all-time high, topping $1,200 an ounce in the biggest one-day gain in more than a year as financial turmoil in Europe and tumultuous U.S. equity trade accelerated the flight to safety.
After trading higher through most of the day, gold prices rallied sharply at mid-afternoon, passing the $1,200 mark for the first time since December 4 as stocks plunged on what sources said was an erroneous trade at a Wall Street bank.
While major stock indices recouped much of their sudden losses after falling as much as 9 percent, gold clung to its over $30-an-ounce gains, underscoring the ongoing skittishness of investors and the desire for safer asset amid mounting worries about euro zone contagion from Greece’s debt problems.
“Gold is yet another currency ... but it does not have the debt issue. It’s not just a Greek problem, not just a European problem, but a global problem,” said Axel Merk, president of California-based Merk Mutual Funds, which has $550 million fund assets.
“Gold is one way that investors can try to diversify in a world where there are no risk-free assets anymore.”
Spot gold rose as high as $1,210.35 an ounce, its firmest since December 4 and its fourth rise in the last five trading sessions. Gold hit a record high of $1,226.10 last December.
It was at $1,208.55 an ounce at 3:30 p.m. EDT (1930 GMT), up 2.9 percent from $1,174.20 late in New York on Wednesday, its biggest rise since February last year.
U.S. gold futures for June delivery on the COMEX division of the NYMEX were up nearly $37, or 3.1 percent, to $1,211.90 an ounce. Earlier, June settled at $1,197.30 an ounce.
Gold priced in euros, in Swiss francs and in sterling all hit record highs, underlying the metal’s strength with rising currency volatility. Meanwhile, strong investment interest boosted holdings of the biggest gold-backed exchange-traded fund to an all-time peak.
Gold prices tend to rise in times of economic and geopolitical crises.
“Despite the ECB being confident that default for Greece is ‘out of question’, the market seems to be nervous,” said Pradeep Unni, senior analyst at Richcomm Global Services.
“At this point in time, it is becoming evident that investors are hedging the recent euro zone and UK crisis equally in gold and the U.S. dollar,” he said.
Waning confidence in euro-zone sovereign debt markets and currencies has boosted gold, traders said.
The premium investors demand to hold 10-year euro zone peripheral government bonds rather than benchmark Bunds rose after Trichet said buying bonds to combat the credit crisis had not been discussed at a rate-setting meeting. <GVD/EUR>
Escalating concerns that Greece’s debt crisis may spill over into other euro zone states knocked the euro down 2 percent to under $1.26 on Thursday. <FRX/>
Dollar strength usually weighs on gold, but this factor is, for the moment, being outweighed by risk-related buying.
Euro-priced gold hit a record high of 962.20 euros an ounce, while in Swiss francs and sterling the metal also peaked at a record at 1,348.33 francs an ounce and 820.37 pounds an ounce respectively.
RISK APPETITE GROWS
Euro zone states are finalizing details of a 110 billion euro aid package for Greece, which is struggling to implement austerity measures attached to the aid.
Despite gold’s rally, Morgan Stanley said in a note, “We see further upside from current levels.”
Investment demand for bullion has been strong, with the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, reporting a rise of 7 tonnes in its holdings to a record 1,166.002 tonnes on Wednesday. <GOL/SPDR>
The more industrial precious metals -- silver, platinum and palladium -- rebounded on Thursday after selling off with most other commodities on Wednesday as risk aversion soared.
Platinum was at $1,634.50 an ounce, having earlier climbed 3 percent to $1,682 an ounce against $1,625 on Wednesday.
Meanwhile palladium was at $498 against $501.50 and silver was at $17.39 an ounce versus $17.43.
Additional reporting by Jan Harvey in London; Editing by Lisa Shumaker
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