Safe haven buying sees gold flirting with record highs

By Amanda Cooper (Reuters): Gold rose on Tuesday to within less than 1 percent of record highs after weak German data knocked equities and the euro, prompting a flurry of safe-haven buying, while silver and palladium touched multi-month highs.

Palladium, used mainly in autocatalysts, struck four-month highs as a combination of fund buying and growing prospects for industrial demand lifted prices.

Spot gold XAU= was at $1,253.85 an ounce by 1055 GMT, up from $1,245.25 the day before. U.S. gold futures for December delivery GCZ0 were last up $8.40 an ounce at $1,255.50.

"All four precious metals are really keeping a very close eye on the U.S. dollar right now and if the dollar doesn't 'shape up,' as such, this safe-haven buying will continue in the precious metals," said Afshin Nabavi, head of trading at MKS Finance.

A raft of economic data from both the euro zone and the United States should offer further proof of the health of both regions and will be particularly important in whetting investor appetite for gold.

"People will be looking at that for some direction, but overall, I would say given the economic situation in the U.S. as well as ongoing geopolitical tensions we are pretty much on our way towards breaking $1,265 and thereafter, up to $1,300," Nabavi said.

SENTIMENT

The euro slid against the dollar EUR= after an indicator of German economic sentiment fell unexpectedly in September.

The dollar extended losses on Tuesday to hit 15-year lows against the Japanese yen and plumbed nine-month lows against the Swiss franc, another key safe-haven asset, while euro zone government bond yields also declined.

Gold is on track for a near-14 percent rise this year, fuelled primarily by investors seeking an alternative to volatile currencies, equities and some sovereign bonds as economic data has cast doubt on the global growth outlook.

Although the price is now less than 1 percent below late June's record-highs, the market is now in the full throes of the buying season in some of the world's biggest consumers.

Commerzbank analysts said outflows of metal from some of the larger exchange traded funds, such as the SPDR Gold Trust (GLD), reflected a shift by investors towards higher risk assets.

"Given the substantial overhang of speculative long positions, profit-taking is now possible by short-term oriented financial investors if this sluggishness in prices continues.

The risk of position squaring increases for each day that gold prices are not able to overcome the record high of $1,265," Commerzbank said in a daily report.

Offering gold support on Tuesday was a decline on theequities markets, where major European indexes tilted into negative territory. [.EU]

Across the rest of the precious metals complex, silver traded at its highest in 2-1/2 years, helped by robust Chinese industrial output and firm base metals, although the safe-haven effect boosting gold was also a driving force. [MET/L]

Spot silver XAG= was last at $20.27 an ounce, up from $20.02 the day before and on course for its third consecutiveday of gains.

In the platinum group metals, palladium XPD= hit itshighest in four months, trading above $540 an ounce.

"We're getting better noises coming out of the euro zone about projected growth and industry and obviously, palladium is quite tightly linked to industry," one European trader said.

Palladium, which is predominantly used in the production of auto catalysts, is on track for a 33 percent increase this year and is one of the top performers of the commodities complex.

Palladium was last at $538.50, up from $524.95 on Monday,while sister metal platinum XPT= was last quoted at $1,568.00 an ounce, up from $1,543.65 the day before.