Gold passes $1,800 on France jitters, oil up too

NEW YORK Thu Aug 11, 2011 2:34am IST

Gold plates are displayed for the media inside a Bank of Taiwan branch outlet in Taipei April 21, 2011.  REUTERS/Nicky Loh/Files

Gold plates are displayed for the media inside a Bank of Taiwan branch outlet in Taipei April 21, 2011.

Credit: Reuters/Nicky Loh/Files

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NEW YORK (Reuters) - Safe-haven buying lifted gold above $1,800 per ounce for the first time and oil rebounded from six month lows on Wedesday as confidence in the U.S. and euro zone economies eroded fast, while the outlook for Chinese commodities demand brightened.

With global interest rates very low, many investors bought commodities as a wealth-preservation alternative to cash. That flight to safety added 1.4 percent to the Reuters-Jefferies CRB Index, a day after the benchmark basket of 19 commodity futures hit an eight-month low as money fled plunging stock markets.

Even as equities on Wall Street nosedived again, markets focused on a downturn in French stocks. The crux of Europe's debt fears spread from Italy and Spain to a country with a top credit rating, which in turn sent gold up more than 3 percent briefly as one of a handful of relatively low-risk assets.

"The skies would appear to be clear for these safe havens like gold," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, Greenwich, Conn. With the debt woes spilling over into the world's biggest economics, "we don't know where this thing is going to stop anymore."

Even a rebound in the dollar, which rose in the rush to buy safe U.S. Treasury securities, did not cool the ardor for gold, though it made buying it costlier in other currencies.

Benchmark U.S. gold futures rose to $1,801 an ounce, the third record in a row, extending its biggest rally since the financial crisis of 2008. It closed up $41.30, or 2.4 percent, at $1,784.30.

Spot gold was 2.6 percent higher at $1,789.14 in late trade. The price of bullion peaked at $1,796.86 and also hit record highs in euro and sterling terms.

While the Federal Reserve's pledge to keep borrowing rates near zero for at least two years briefly lifted confidence and stock markets on Tuesday, its motivation remained the weakness in the U.S. economy, which makes it even harder to fix the budget deficit that led to an S&P downgrade this week.

The Fed said it stood ready to take additional measures to stimulate growth, but stopped short of flagging a fresh round of bond buying to keep interest rates low, known as quantitative easing, which was a key driver in the sharp rise in commodity prices, including gold over the last year.

Crude rebounded from Tuesday's plunge to the lowest prices since February as commodities diversification offset immediate worries about the economic cycle. Brent rose $4.11 to $106.68, but was still down on the week so far, after tumbling nearly 10 percent last week.

U.S. light crude rose $3.59 to $82.89.

U.S. government data showed U.S. crude stocks fell by 5.23 million barrels last week, confounding forecasts for a build in stocks. Crude stored at the NYMEX Cushing, Oklahoma, hub fell 1.37 million barrels, its lowest level since November.

"The report gave the market a bit of a pop but I don't know if oil can shake off the way the dollar and equity markets are reacting," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Economically sensitive copper took the brunt of the worries about long-term demand for raw materials.

Three-month copper on the London Metal Exchange closed at its lowest level since December, 2010 at $8,595 a tonne, down 1.5 percent from Tuesday. U.S. September copper fell 8.15 cents to $3.8885 per lb.

Analysts saw the Fed's rate pledge as only a short-term benefit to base metals as the focus returned to the health of the economy and its implications on metals demand.

Helping limit the fall in copper, China reported that imports of unwrought copper and semi-finished copper products rose 9.5 percent on the month to a six-month high in July.

China's overall exports also hit a record high last month as shipments to Europe and the United States proved surprisingly buoyant, easing concerns that debt problems abroad may hold back the world's No. 2 economy.

(Additional reporting by Amanda Cooper in London, Carrie Ho and Lewa Pardomuan in Singapore; Editing by David Gregorio)

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