Reuters

NEW YORK, LONDON — Gold hit a fresh seven-month high on Tuesday after a slew of negative reports including warnings of deterioration in Eastern Europe, Japan's shrinking economy, and sinking U.S. manufacturing activity, drove investors to safe-haven investments.

“What you're seeing is another round of safe-haven buying in gold. Today, another round of concerns in the banking industry and in the global economy,” said David Meger, metals analyst at Alaron Trading in Chicago.

Spot gold rose to $969.35/$971.35 (U.S.) an ounce at 2012 GMT from $940.90 in New York late on Monday. It touched a high of $973.20 an ounce, its firmest since July 22.

In New York, gold for April delivery surged $25.30 or 2.7 per cent to finish at $967.50 an ounce on the Comex division of the New York Mercantile Exchange.

During the session, gold futures rallied to their highest level in seven months at $974.90 an ounce.

Fears over a deepening recession in Eastern Europe sent the metal to record highs in a raft of currencies – including the euro, sterling, the South African rand, the Indian rupee and the Canadian and Australian dollars.

“We are seeing complete risk aversion, with equities selling off and the dollar rising,” said VTB Capital analyst Andrey Kryuchenkov. “Investment demand is rising for gold.”

Credit rating agency Moody's Investor Service threatened to downgrade eurozone banks with significant exposure to deteriorating economies in Eastern Europe.

Standard & Poor's also said it may review emerging Europe bank ratings now that the credit crisis has limited western European banks' ability to fund subsidiaries in the region.

“Gold is the asset of choice right now and given renewed concerns about Eastern Europe and [with the] banking sector again under pressure, investors are looking at gold,” said James Moore, an analyst at The BullionDesk.com.

Fears over the outlook for the economy worsened after a survey showed manufacturing production in New York state fell to a record low in February.

Wall Street stocks tumbled on concern the recession is worsening, taking the benchmark S&P 500 below the 800 level for the first time since Nov. 21.

While investment in products like gold-backed exchange traded funds has soared as investors seek a safe place for their cash, high prices are hurting jewellery demand in key centres of gold buying, India, China and the Middle East.

The benchmark April gold contract traded in India peaked at 15,379 rupees ($309.12) per 10 grams, boosted by safe haven buying and a weak rupee.

Alexei Ulyukayev, deputy chairman of Russia's central bank, told Reuters the bank had increased gold's share of its reserves, and planned to continue doing so this year. “We are buying gold,” he said.

UBS strategist John Reade said he expected the bank would make purchases from domestic producers.

“We expect slow and steady accumulation from the CBR in coming years and do not expect Russia to start buying gold in the international OTC market,” Mr. Reade said.

Among other precious metals, swept up by the lust for gold, spot silver climbed to a six month high of $14.07 an ounce, and was later quoted at $13.90 an ounce in late New York business, up from $13.60 on Friday.

Spot platinum firmed to $1,090.50/$1,093.50 an ounce from $1,063 previously. The fundamentals for the metal remain weak, with demand from car makers – the major users of the platinum group metals – severely hit by the recession in the United States.

Spot palladium hit a three-month high of $218.50 an ounce, before easing back to $216 an ounce, up from Friday's $213.50.

The metal has been supported by buying for palladium-backed ETFs, on the perception that the metal is cheap compared to its peers.