* Worries over banks, economy bolster gold as safe haven
* Firm investment demand outweighs weak jewelry buying
* Bullion priced in sterling hits record high
(Recasts, updates quotes, prices, adds NEW YORK dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Jan 20 (Reuters) - Gold prices climbed
more than 2 percent on Tuesday, rising above $865 an ounce,
amid market talk of a large order, with firm investment demand
for gold as a haven from risk fueling buying.
"It looks like they are waking up to the situation of the
banking crisis. It's flight to quality, without a doubt. The
rest of the world must be really going off the deep end," said
Jonathan Jossen, a gold options floor trader.
British bank shares tumbled after Royal Bank of Scotland
unveiled the biggest loss in British corporate history as the
government announced a second support package for banks
designed to counter recession by kick-starting lending to
businesses and consumers. []
Spot gold <XAU=> was at $852.60 an ounce at 2:33 p.m. EST
(1933 GMT), up 2.2 percent from the last trade at $834.55 late
on Monday. It hit a session high of $865.80, which marked the
highest price since Jan 9.
Gold for February delivery <GCG9> settled up $15.30, or 1.8
percent, at $855.20 an ounce on the COMEX division of the New
York Mercantile Exchange.
Standard Chartered analyst Daniel Smith said strong
investor flows into products such as exchange-traded funds, as
investors sought more secure assets, were offsetting weaker
jewelry demand.
"People are slowly building long positions in gold and
commodities more generally," he said.
Gold shrugged off early weakness linked to a strengthening
U.S. dollar and weaker oil prices.
The dollar rose to a 7-1/2-year peak against the pound on
rising risk aversion amid UK banking sector concerns, while the
euro fell to a six-week low against the greenback on concerns
about a deep recession in the euro zone. []
A stronger dollar usually pressures gold, which is often
bought as an alternative investment to the U.S. currency.
In sterling terms, the weak pound pushed gold to a new
all-time high, according to Reuters data, of 619.91 pounds.
Crude oil, the other main external driver of gold, jumped 7
percent as traders sought to square their books ahead of expiry
of the February futures contract. []
JEWELRY DEMAND WEAK
Overall, fears over the outlook for the global economy and
the financial system were boosting interest in products like
exchange-traded funds -- which issue securities backed by
actual stocks of gold. These are seen as less risky than paper
assets.
The world's largest gold-backed ETF, New York's SPDR Gold
Trust, said its holdings were currently at a record 795.25
tonnes.
World Gold Council, an industry-sponsored trade group, said
in a report that the average price of gold jumped 25 percent to
$871.90 in the fourth quarter of last year on safe-haven buying
as stocks and other commodities fell sharply. []
Among other precious metals, platinum <XPT=> weakened 1.2
percent to $937 an ounce, against $948.50 late on Monday.
Prices for platinum have remained in a relatively narrow
range below $1,000 an ounce as traders continue to fret about
the demand outlook as the economy slows.
Platinum has shed some 60 percent of its value since it hit
an all-time high of $2,290 an ounce last March on fears over
falling consumption by carmakers, who account for around half
of global demand for the metal.
Palladium <XPD=> was quoted at $181 an ounce, against $183
late on Monday, while silver <XAG=> was at $11.15 an ounce, up
0.2 percent from its previous session close at $11.13.
(Editing by Walter Bagley)
