Gold hit a fresh seven-month high on Tuesday after weaker-than-expected US manufacturing data fuelled fears over the economic outlook, boosting investment in bullion as a safe store of value. Fears over a deepening recession in eastern Europe earlier in the session sent the metal to record highs in a raft of currencies - including the euro, sterling, the South African rand, the Indian rupee and the Canadian and Australian dollars.
Spot gold rose to $966.15/968.15 an ounce at 1534 GMT from $940.90 in New York late on Monday. Earlier it touched a high of $970.90 an ounce, its firmest since July 22. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $26.90 to $966.50 an ounce, having earlier touched a high of $968.40.
"We are seeing complete risk aversion, with equities selling off and the dollar rising," said VTB Capital analyst Andrey Kryuchenkov. "Investment demand is rising for gold." Fears over the outlook for the economy worsened after a survey showed manufacturing production in New York State fell to a record low in February. Wall Street stocks tumbled on concern the recession is worsening, taking the benchmark S&P 500 below the 800 level for the first time since November 21.
This added to gloom caused by credit rating agency Moody's statement that the recession in eastern Europe is likely to be more severe than elsewhere and would pressure financial strength ratings of local banks and their Western parents. Such fears are boosting gold, analysts said. "Gold is the asset of choice right now and given renewed concerns about eastern Europe and (with the) banking sector again under pressure, investors are looking at gold, said James Moore, an analyst at The BullionDesk.com.
While investment in products like gold-backed exchange traded funds has soared as investors seek a safe place for their cash, high prices are hurting jewellery demand in key centres of gold buying, India, China and the Middle East. The benchmark April gold contract traded in India peaked at 15,379 rupees per 10 grams, boosted by safe haven buying and a weak rupee.
Gold shrugged off moves in its usual external drivers, crude oil and the dollar. The dollar, which normally moves in the opposite direction to gold, rose to a two and a half month high versus the euro, also benefiting from rising risk aversion. Oil prices fell more than 6 percent as bleak economic indicators in Asia turned attention back to the demand slump.
Elsewhere Alexei Ulyukayev, deputy chairman of Russia's central bank, told Reuters the bank had increased gold's share of its reserves, and planned to continue doing so this year. "We are buying gold," he said. UBS strategist John Reade said he expected the bank would make purchases from domestic producers.
"We expect slow and steady accumulation from the CBR in coming years and do not expect Russia to start buying gold in the international OTC market," he said. Among other precious metals, spot silver climbed to a six month high of $14.07 an ounce, and was later quoted at $13.97/14.05 an ounce from $13.57. Spot platinum edged up to $1,082/1,087 an ounce from $1,063.
The fundamentals for the metal remain weak, with demand from carmakers - the major users of the platinum group metals - severely hit by the recession in the United States. Spot palladium hit a three-month high of $218.50 an ounce, before easing back to $216/220 an ounce from $213.50. The metal has been supported by buying for palladium-backed ETFs, on the perception that the metal is cheap compared to its peers.