Gold has rallied 1.5 per cent to its biggest one-day rally in more than two months, as higher-than-expected US jobless claims prompted a surge of buying in perceived safe-haven assets.
Gold prices hit a four-week high despite two days of sharp equity market losses, after the Federal Reserve downgraded its economic outlook and said it needed to buy government debt to boost a flagging economy.
Earlier on Thursday, gold jumped about $US10 in the minutes after data showed the number of US workers filing new claims for unemployment insurance unexpectedly rose last week to a near six-month high, signalling a weak job market.
"With the weak job report, and everything else we heard in the past couple of days, you are finding safe-haven bid in gold," said Fred Schoenstein, trader at Heraeus Precious Metals Management in New York.
Mr Schoenstein also cited a "very strong technical signal" in the US December contract after it closed above key resistance at its 50-day moving average at $US1,214.30 an ounce.
Bullion largely range-bounded this week after the Fed's reassessment, but it finally broke out on Thursday as its appeal as an alternative asset increased due to a stock market swoon. The S&P 500 was down more than 3 per cent so far this week.
Gold for December delivery on COMEX settled up $US17.50, or 1.5 per cent, at $US1,216.70 an ounce. It was December's biggest one-day percentage gain since June 7.
Gold was at $US1,214.75 an ounce by (0409 AEST), against $US1,197 late in New York on Wednesday, still nearly five per cent below late June's lifetime high around $US1,264.
Earlier this week, data showed the US trade gap surprisingly widened in June, suggesting economic growth was weaker than previously thought. In China, a government-induced slowdown in investment took a toll on imports, threatening to derail global economic recovery.
Wall Street came under pressure for a second day after weaker jobless claims data. A NBC News/Wall Street Journal poll showed almost two-thirds of Americans believe the US economy will worsen before it gets better.
Traders also cited a bullish research note from Goldman Sachs, which upgraded its forecast for the gold price, as a driver to the rally in the price on Thursday.
"The recent sell-off has left speculative long positions in gold oversold relative to US real interest rates, which we believe has set the stage for a rally to our six-month gold price target of $US1,300/ounce," Goldman said.
The metal rose as the dollar extended the previous day's strong gains due to risk aversion and weaker-than-expected Greek economic data.
The correlation between gold and the US currency has been erratic so far this year, as the metal and the dollar both benefited from safe-haven demand due to fears about global growth at times.
ETF holdings rise
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings rose for the first time in a week.
Silver benefited from gold's rise, and was at $US18.03 an ounce, up from $US17.84 the day before.
Spot platinum was at $US1,525.50 an ounce, down around 1.5 per cent from the levels late in New York on Wednesday, but up from an intraday low of $US1,500.75. Palladium was at $US466, versus $US477.00 Wednesday.
Sentiment among PGMs traders should improve after General Motors posted its biggest quarterly profit in six years.
