LONDON (SMM) - Gold hit a record $1 778/oz on Tuesday, in its biggest three-day rally since the depths of the financial crisis in late 2008, as equities succumbed to investor fear over the threat to the global economy from the European and US debt crises.
Gold has risen by about 8% this month, driven by flows of cash out of equities, bonds and currencies, after the United States lost its top-notch credit rating. Investors have lost confidence in the ability of European leaders to stem the spread of the debt crisis that has now engulfed the euro zone's third- and fourth-largest economies, Italy and Spain.
European stocks lost over 5%, higher-yielding currencies slid, German government bonds and the Swiss franc rallied as investors ditched anything perceived to be risky.
Spot gold was last at $1 769.90/oz at 09:30 GMT, up 3.2% on the day, having hit a record $1 778.30, earlier. In the last three days, the price has risen by more than 7%, its biggest move in this timeframe since November 2008.
"The market could come off from here, but it's headed in a northerly direction," said ANZ head of metal sales Peter Hillyard. "From where we are now, you might think we could see some sort of pull-back. But I'm talking about a momentary thing, a pull-back like the loading of a gun, which then fires away."
Reflecting the rush into gold, holdings of metal in exchange-traded funds rose for a twelfth consecutive daily increase, rising to all-time highs close to 70-million ounces, or 2 177 tonnes, equivalent about half of total supply in 2010, based on World Gold Council data.
The European Central Bank bought Italian and Spanish bonds on Monday to try to stem the spread of the region's debt crisis, but in doing so, found itself locked in full-blown conflict with the German central bank, which feels the ECB should stick to its mandate of fighting inflation.
Gold priced in euros hit an all-time peak above 1 240 euros an ounce and was set for its biggest two-day rally since May last year when the euro zone debt crisis first flared, while gold in sterling and yen also hit records.
The euro itself took heart from the ECB's efforts, rallying 0.4% against the dollar, but held near record lows against the safe-haven Swiss franc .
Global equities were down by over 1%, having fallen by 14.5% so far in August and set for their worst monthly performance since late 2008.
"The stock market is plummeting, that is pretty much the only story out there. Bond yields are down and obviously there is the flight-to-safety argument," said RBS analyst Daniel Major.
Gold's upward progress has attracted some profit-taking from investors who have scrambled to plug holes in their portfolio from the rout across the stock markets.
Top asset manager BlackRock will use profits it is making in gold and bond markets to seek out bargains in falling global equity markets, James Holt, investment strategist at the world's largest money manager, said on Tuesday.
However, analysts said that the current push into gold appeared to be fairly solid.
"... the ingredients are all in place for a stronger gold price, as the metal is not subject to the risk of intervention or quantitative easing," said UBS strategist Edel Tully in a note.
"This doesn't mean that pullbacks won't occur, and though some of these may be severe, we believe dips will be bought. Comex net longs may be at record levels, but current gold buying is very broad-based, with a strong physical bias which provides much support," she added.
In other precious metals, silver fell 1.7% on the day to $38.21/oz, pushing the gold/silver ratio to 46.0, a six-month high in the outperformance of gold versus silver.
Platinum rose 0.7% to $1 723.49/oz, while palladium rose 1.3% to $724.22.
Of vital importance to markets later in the day will be the outcome of the meeting of the US Federal Reserve's policy-setting committee, which many hope will signal its intention to support the economy and restore some stability to markets.