US MIDDAY: gold rallies two percent

Gold rallied 2 percent to new high above $1,820 an ounce on Thursday, after US economic data pointed to a stalled economy, while renewed concern about the health of European banks brought safe-haven buying. Bullion's fourth consecutive daily rise came after news that US Mid-Atlantic region factory activity plummeted and existing home sales unexpectedly dropped.
Investors dumped stocks and other riskier assets for the perceived security of gold and US Treasury securities. The Dow Jones industrial stock average fell 4 percent and crude oil plunged 5 percent. Bullion is headed for its seventh straight weekly gain.
"Option dealers are buying a lot of calls and they are very bullish. With the stock markets selling off, people are hedging their portfolio with gold buying," said Jonathan Jossen, independent COMEX gold options floor trader. Spot gold was up 1.9 percent at $1,822.29 ounce by 11:23 am EDT (1523 GMT), having hit a record $1,825.99 and was on course for a 9 percent gain over the last two weeks, its best two-week performance since mid-February 2009.
Silver was up 0.9 percent at $40.50 an ounce. Jossen said bullish option positioning included bull call spreads with strike prices that suggest gold could keep rallying to $2,000 an ounce. Adding to market nervousness and interest in gold was a Wall Street Journal report that the US Federal Reserve Bank is taking a closer look at the US units of Europe's biggest banks.
Standard Bank Analyst Leon Westgate said that investors are becoming more and more worried that slowing economic growth will push developing economies into recession, which has seen market participants move distinctly to a risk-off stance. "In this environment of risk aversion, gold should continue to garner investor interest," Westgate said. The World Gold Council said in a report on Thursday that overall gold demand fell 17 percent in the second quarter to 919.8 tonnes, as growing interest in jewellery, coins and bars failed to offset a sharp decline in ETF buying. Precious metals consultant GFMS said on Thursday that gold could hit $1,900 an ounce in the next six months, but a further rise to $2,000 looks unlikely.