Gold hits 7 week high

Gold jumped to its highest level in seven weeks on Tuesday. Speculative buying picked up after the U.S. dollar dropped to multi-week lows against the euro on uncertainties over the U.S. government's bailout plan.

Gold has jumped 16 percent in the past week as the dollar lost 4.8 percent against the euro amid the widening global credit crisis and on concern a U.S. proposal to buy $700 billion of troubled assets would widen the budget deficit.

Gold was trading at $901.90 an ounce, up $1.70 an ounce or 0.2 percent from New York's notional close on Monday, having hit an intraday high of $908.80 an ounce -- its highest level since early August.

"Recent events in the financial markets have raised the level of uncertainty, making gold more appealing as a safe haven asset,'' Merrill Lynch analysts led by Francisco Blanch, wrote in a report e-mailed today.

"Once the immediate liquidity crisis subsides, the market should focus on the fiscal implications of the recent measures, putting heavy downward pressure on the U.S. dollar.''

Gold last hovered around $870 and $880 in August.

The euro rose to $1.4825, holding near a one-month high struck on Monday when it posted its biggest one-day gain since 1999 on fears a $700 billion bailout for the financial sector may not resuscitate the economy.

In theory, a weaker dollar boosts gold's appeal as an alternative investment to currencies, stock markets and bonds.

Despite gold's gains, dealers remained cautious, with the metal already moving in a wide range since tumbling to an 11-month low of $736 an ounce two weeks ago. Gold is way below a lifetime high of $1,030.80 hit in March.

"Despite its increased appeal, gold has been unable to significantly decouple itself from movements in the U.S. dollar so far,'' the Merrill analysts wrote in the report. "A weaker U.S. dollar should help support gold prices as the two markets have been closely linked in the past year.''

Author: Jo Amey