NEW YORK/LONDON (Reuters) - Gold prices roared to one of the biggest one-day rallies in years on Tuesday, as euro zone jitters and gloomy U.S. consumer data rekindled a dormant safe-haven bid and triggered a flurry of technical buying.
After several months of trading largely in sync with riskier assets, gold raced more than 3 percent higher even as stock markets sank, cruising toward its best three-day run since a sharp fall in early August and reaching its highest price in more than a month. Silver soared 4 percent.
The rally coupled with the apparent return of gold’s allure as a haven from uncertainty, instability and economic weakness emboldened some bulls, who have been sidelined through a month of range-bound trading. Strong buying related to a technical breakout and options expiry on Wednesday also aided bullion.
“Today is the first day since September that we are seeing real good technical and safe-haven buying,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Flight-to-quality buying reemerged after a flare-up over the European Central Bank and political turmoil in Italy kept the euro zone on edge on the eve of a European Union summit. But gold also appeared poised to win if leaders agree to “throw a load of money on the table”, McGhee said.
Spot gold was up 3.2 percent at $1,705.24 an ounce by 2:38 p.m. EDT.
U.S. December gold futures settled up $48.10 at $1,700.40 an ounce. Trading volume was in line with its 30-day average.
Analysts said Tuesday’s action was aided by a technical breakout as sizable buy orders from new investors emerged with heavy volume following a breach of strong resistance at around $1,660 an ounce.
More than 170,000 ounces changed hands for the December contract within a 10-minute timespan around 10 a.m. EDT after data showed U.S. consumer confidence unexpectedly fell this month to its lowest since March 2009.
McGhee said futures short-covering by option sellers also boosted prices ahead of Wednesday’s COMEX November option expiration. The $1,700 November call has been a popular bullish option play, traders said.
“A lot of today’s rally was new buying, and $1,668 was the breakout point that brought more bullish momentum in gold,” McGhee said. “Short-sellers ended up with futures that they never thought they would have to worry about.”
Gold benefited from a flight to safety as disputes raged in France and Germany before European leaders are due to adopt a plan to reduce Greece’s debt burden, fortify European banks to withstand bond losses, and scale up the euro zone rescue fund to prevent market contagion.
“People are realizing that the European situation is not resolving itself, and it’s coming to the forefront again,” said Zachary Oxman, managing director at futures broker TrendMax.com.
“If we can close above $1,700, I think we will see a meaningful jump in the next few weeks and $1,900 is very possible again.”
Longer-term bullion investors also appeared to renew their buying interest.
Holdings of metal in exchange-traded funds, often a measure of investor desire for physical bullion, staged their largest one-day rise since mid-September, following a net inflow of over 200,000 ounces, bringing total holdings to their highest in a month.
Silver was up 4.9 percent at $33.24 an ounce.
Options on U.S. silver futures expire on COMEX on Wednesday. Most open interest centers on outright put options — which give the holder the right, but not the obligation, to sell metal at a predetermined price by that date — at $32.00 an ounce and on call options at $31.00.
Platinum was up 1.5 percent at $1,562 an ounce, also having risen for three days in a row, marking its largest three-day gain since mid-August.
Palladium was up 1.7 percent at $646.47.
Editing by Marguerita Choy and Dale Hudson