Gold and silver jumped more than 2 percent on Monday, with bullion gaining for a second day as Lehman Brothers' bankruptcy and anxiety over the stability of US financial markets spurred a rush toward safety. Lehman Brothers Holdings said it was filing for Chapter 11 bankruptcy protection, shaking faith in the stability of the US financial system and sparking talk of a possible interest rate cut, boosting gold's investment appeal.
The dollar dropped as much as 1 percent against the euro, adding to Friday's slide, its biggest one-day decline against the single currency in six months, which lifted bullion. "Gold is on fire right now. There is a huge amount of nervousness about Merrill and Lehman. The financials are being hit really hard and things could get very interesting once US markets open," Peter McGuire, managing director of Commodity Warrants Australia said.
"These are not normal events and people are running to safety, running to quality," he said, adding that gold could rally to $820 to $830 in the next couple of days. Spot gold rose 2 percent or $14.85 to $778.30 an ounce at 0646 GMT from Friday's nominal close in New York. Prices were climbing from a second day, recovering from last Thursday's tumble to an 11-month intra-day low of $736 an ounce.
Silver gained 1 percent or 11 cents to $10.94. "Gold's price response today looks like safe-haven behaviour. The Lehman story is dominating markets, while bullion is probably getting a bit of a lift from the dollar," Gerard Burg, an analyst at National Australia Bank, said.
"But the longer-term is still bearish. In relative terms gold has been pretty soft as the dollar strengthened. Also Indian demand looks comparatively weak and the gold market can't live without India." As Lehman's woes simmer, problems with other big Wall Street names could be brewing. Insurance giant AIG was reported to be seeking around $15 billion in extra capital to stave off ratings downgrades. But a take-over of brokerage Merrill Lynch for $44 billion by Bank of America took a little of the uncertainty out of the market.
Oil fell 2.1 percent to $99.02 a barrel and earlier touched $98.46, its lowest since February 26, as dealers bet on a swift recovery in US energy production after former Hurricane Ike moved inland and the government loaned oil to two refiners. Asian markets, including the Tokyo Commodity Exchange and markets in China and Hong Kong, were closed for holidays. Spot platinum rose 1 percent to $1,215.00 an ounce from Friday. Spot palladium gained 50 cents to $243.00 an ounce.