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Gold extends biggest-ever gain as funds seek safety

Gold rose as much as 3% to a more than six-week high on Thursday, extending its biggest ever one-day rise as investors rushed to the safety of bullion as credit fears continued to roil global financial markets.

The dollar steadied against major currencies after Wednesday’s fall against the euro, but demand for safe-haven assets was clearly in evidence as investors fled stock markets fearing the crisis on Wall Street had yet to play out despite US government efforts to prevent a financial meltdown.

Spot gold rose 1.1%, or $9.60, at $872.30 per ounce as of 0223 GMT from the notional close in New York on Wednesday, when it surged more than 10% or nearly $90, exceeding the previous biggest one-day gain in 1980. Gold earlier jumped more than 3% to as high as $892.10 per ounce - the highest since Aug. 5 - with a burst of strong buying from Japanese investors after the gold futures contract on the Tokyo Commodity Exchange rose by its daily limit, forcing them to buy cash gold and US gold futures, traders said.

“This is unbelievable. Nobody really expected this kind of a rise. This tells how much the market is nervous,” said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo. “Basically funds are only heading into gold as uncertainties in the financial market is very strong.” Gloom over the financial industry’s outlook remained dense on Thursday, with investors scanning the horizon for the next possible victim even after US authorities bailed out insurer American International Group with an $85 billion rescue plan, Lehman Brothers collapsed and Merrill Lynch got bought.

US stocks dropped more than 3% on persistent worries about the health of the US financial industry, and Asian stock markets followed with 3-4% losses on Thursday. COMEX gold futures extended gains after rising 9% on Wednesday. The most active December contract was trading up $29.6 or 3.5% at $880.1 from the New York settlement.

Benchmark August 2009 Tokyo Commodity Exchange gold futures jumped by the daily ¥150 limit to ¥2,808 per gram. It rose 5.6% from Wednesday. “On charts, gold sentiment has clearly turned bullish and $900 is in the market’s sight, but the speed of the rise is too fast,” Kageyama said. Precious metals consultancy GFMS said in a report that investment demand was expected to drive gold prices “well above” $900 an ounce in the Q4 as the dollar slips and the outlook for the financial sector worsens.

Gold was also helped by a surge in oil prices, which shot up $6 on Wednesday, the largest one-day per centage gain in three months, as a US government report showed a fall in oil stocks after hurricanes hit the Gulf Coast. Oil was little changed on Thursday at $97.20 a barrel. Spot platinum slipped slightly to $1,139 per ounce after rising by more than 3% to as high as $1,150.50 earlier on Thursday, bouncing from a two-year low after prices nearly halved since July on weakening demand from car makers. (Reuters)