Gold leaps 2 percent to record, nervous investors pour in

NEW YORK (Reuters) - Gold surged more than 2 percent to a record above $1,270 an ounce on Tuesday, its biggest one-day gain in four months, as investors sought a bastion of stability amid topsy-turvy trade in other markets.

A saleswoman stands behind the showcased gold necklaces at a jewellery showroom in Agartala, capital of India's northeastern state of Tripura, August 18, 2010. REUTERS/Jayanta Dey

Silver hit a 2-1/2-year high and platinum group metals leapt as much as 5 percent on gold’s rally, underscoring a schizophrenic day in which equities see-sawed, the dollar sank, soft commodities jumped and funds fled uncertainty.

Gold rallied early in the U.S. trading day on market talk about a Goldman Sachs research report that the Federal Reserve will cut growth forecasts and embark on more quantitative easing to get a shaky global economy firmly back on track.

That news, coupled with a Japanese political vote that dimmed the risk of yen intervention and weak German investor morale data, took the dollar index .DXY about 1 percent lower, helping extend bullion's gains this year to 16 percent and making it a top-performing asset.

Spot gold was at $1,272.20 an ounce by 3:03 p.m. EDT (1903 GMT), up from $1,245.25 the day before and having hit a record high of $1,274.75. U.S. gold futures for December delivery settled up $24.60, or 2 percent, at $1,271.70.

Axel Merk, portfolio manager of the $500 million Merk Mutual Funds, said gold’s rise was driven by renewed worries over reflation, with investors seeking a hedge that would better hold its value as governments strive to boost economic growth with future bailouts and deficit spending.

Others cited a more general lack of clarity over the outlook for other markets.

“There are still a lot of doubts lurking in the background. People are nervous about financial markets and aren’t convinced that they are going to continue to rally, and that type of uncertainty is working in gold’s favor,” said Bill O’Neill, partner at New Jersey-based commodities firm LOGIC Advisors.

This year has seen an expansion in open interest in U.S. gold futures and hefty flows into exchange-traded products backed by physical bullion. Even if economic data improves, some analysts believe gold has room to rally further.

Related Coverage

“The funds are certainly doing some buying ... who else is it going to be? It’s not producers buying it back, it’s investors. And investors, whether rightly or wrongly, believe in this,” said ANZ head of sales Peter Hillyard.

“It’s going up for all the same reasons. People are fearful still. Little things come into the market, little factors that awaken people’s interest in gold,” he said.


The dollar sold off across the board, touching a 15-year low below 83 yen as a break of technical support in several pairs sparked a stampede out of the U.S. currency.

U.S. equity markets were mostly mixed, but Treasury prices rallied as a report showing sturdy consumer spending in August failed to shift investors’ expectations for a slowdown.

Gold could rally above $1,300 an ounce this year, setting successive all-time highs, as uncertainty about economic recovery and a sovereign debt crisis stoke investment interest, metals consultancy GFMS Ltd said in a closely watched report.

Across the rest of the precious metals complex, silver traded at its highest in 2-1/2 years, helped by robust Chinese industrial output and firm base metals, though the safe-haven effect boosting gold also served as a driving force.

Spot silver last fetched $20.45 an ounce, up from $20.02 the day before and on course for its third consecutive day of gains.

In the platinum group metals, platinum leapt to its highest since early August, and was last at $1,590.50 against $1,543.65 on Monday.

Palladium hit its highest in four months and last fetched $551.50, up from $524.95 on Monday, set for its biggest daily rally since late May.

Additional reporting by Amanda Cooper in London; Editing by Dale Hudson