NEW YORK (Reuters) - Gold logged its biggest price advance ever on Wednesday and oil snapped a two-day rout as fears that the bailout of U.S. insurer AIG would not end the turmoil on Wall Street restored the luster of an established safe haven.
Gold’s 8.97 percent futures rally was the largest daily percentage gain in since February 2000. In absolute terms, bullion had a record day, leading a recovery across the commodities asset class after several days of liquidation sales to raise cash.
The benchmark New York gold futures contract hit a five-week high, storming back above $850 an ounce as traders raced to buy back short-sale bets put on when gold was sliding to $740, a week ago. In March, gold traded at a record high near $1,050.
Money moved back into commodities as the Dow Jones industrials average tumbled 340 points by late afternoon. The Reuters Jefferies CRB Index was up 3.2 percent, halting a steep two-day slide.
“The commodity markets are no exception to what’s happening in all asset classes. Commodities are suffering from the de-leveraging process that’s going on,” said Tobias Merath, head of commodities research at Credit Suisse.
Still, fears that the Wall Street meltdown was spreading pummeled shares of Morgan Stanley and Goldman Sachs, profitable investment banks which had been perceived as relatively insulated from the mortgage derivatives nightmare that this week claimed AIG, Lehman Brothers and Merrill Lynch.
Commodity markets struggled to digest the enormity of the financial troubles at AIG, which co-sponsors one of the largest commodity indexes used by investors.
Asset management firms in Japan reported that at least seven Japanese investment funds that track the Dow Jones-AIG Commodity Index have not been able to trade since Tuesday due to the unavailability of prices from the local provider of the index.
December gold settled up $70 at $850.50 an ounce on the COMEX division of the New York Mercantile Exchange.
Spot goldrose to $866.10 by midafternoon New York, from Tuesday’s close at $777.55, which beats an $85 gain from the January 1980 gold bull market.
“With the stock markets declined sharply all over the world, you definitely see gold reacting as a safe haven and a hedge against stock market volatility,” said Carlos Sanchez, precious metals analyst at research firm CPM Group.
NYMEX October crude rose $6.01, or 6.6 percent, to $97.16 per barrel, following a two-day drop of nearly 10 percent, which was the steepest since December 2004.
“I think it was a flight of capital out of the futures markets and now we are coming back to fundamentals,” said Simon Wardell of Global Insight in London.
Supportive fundamentals included Hurricane Ike, which toppled several platforms in the Gulf of Mexico over the weekend and shut much of the Gulf Coast region’s crude oil and refined fuel production.
Also, Nigerian militants threatened on Wednesday to broaden their “oil war” to offshore oil fields and announced attacks on a pipeline in the Niger Delta and another Shell-operated facility.
At the Chicago Board of Trade, December wheat jumped 35-3/4 cents to settle at $7.25-3/4 per bushel, corn was up 21-3/4 cents to $5.54 per bushel and November soybeans went up 15 cents to $11.39.
On Tuesday the Chicago Mercantile Exchange permitted AIG to conduct block trades, held outside the public auction market to reduce positions in agriculture futures. AIG got the thumbs-up from traders on Wednesday for the orderly block sale of its large positions in grains and livestock which spared the futures markets excess price volatility.
COMEX December copper bucked the commodities rebound, falling 4.65 cents, or 1.5 percent, to $3.0425 per lb as demand worries and the financial turmoil prompted risk-adverse investors to reduce positions.
Additional reporting by Sambit Mohanty in Singapore, editing by Marguerita Choy