Commodity markets rallied strongly across the board on Monday after the US government announced a rescue plan for Citigroup, the embattled bank. News of the bail-out strongly boosted European equities and prompted short-covering in commodity markets.
Gold surged above $800 a troy ounce as investors sought a haven from ongoing volatility in the financial markets.
The metal rose 3.4 per cent to $826 after touching a high of $829.20 an ounce, its highest level since October 16.
It has gained 12.8 per cent after three sessions of consecutive gains.
David Holmes, director of precious metals at Dresdner Kleinwort, said: "There has been a significant shift into physical gold due to its safe-haven qualities, but until very recently, that demand interest was being offset by paper investors who were liquidating speculative long positions as part of the wider pattern of deleveraging."
Mr Holmes said that because much of the deleveraging in precious metals markets had now occurred, gold's strong underlying demand trend was showing more clearly.
Copper led base metals higher, jumping 7.6 per cent to $3,760 a tonne, recovering from a three-year low of $3,375 a tonne in Friday's session.
Copper found support from the news that China, the world's leading copper consumer, imported 15 per cent more refined copper in October than the previous month, and 32 per cent more than in October 2007.
Analysts said Chinese demand for refined copper from overseas had been boosted by production cuts by domestic smelters.
Traders also cited stockpiling ahead of the Chinese New Year, when trading slows down, and an attractive price differential between London and Shanghai.
Robin Bhar, base metals analyst at Calyon, said: "The rally in equity markets on the back of the Citigroup news has helped lift a very volatile and thinly traded commodities market."
Mr Bhar also said: "The rise is clearly unsustainable and we're going to head lower again. The demand slump for commodities can only continue as the global recession deepens."
Tin rebounded 9 per cent to $12,700 a tonne, while zinc rose 3.6 per cent to $1,218 a tonne, and aluminium added 2 per cent to $1,800 a tonne.
Rio Tinto said it would cut output by a third at its aluminium smelter in north-east England, due to lower aluminium prices and higher electricity costs. It produced 133,000 tonnes of aluminium in the first nine months of the year.
Oil was higher for a second consecutive session. Nymex January West Texas Intermediate rose $4.57 to settle at $54.50 a barrel. It had reached $54.60. ICE January Brent gained $4.74 to close at $53.93 a barrel.
The latest data on speculative positioning from the Commodities Futures Trading Commission showed that hedge funds shifted to a net long position, betting that oil prices would rise, for the first time in four weeks.
In the week ending November 18, hedge funds adopted a net long position of 11,000 lots compared with a net short position of 53,000 lots in the previous week.
Crude prices were bolstered by calls for further output cuts when Opec meets on November 29.
Chakib Khelil, Opec president, said a further cut in output was necessary, and indicated that a reduction of more than 1m barrels a day might be required.
