CHICAGO (Dow Jones)-- Gold futures made its biggest dollar gain for a front-month contract ever in Wednesday's session, supported by safe haven money flows as financial turmoil continued and investors fled equities.
Nearby September gold futures at the Comex division of the New York Mercantile Exchange rose $70.10 an ounce, a 9% rise, to settle at $846.60, and this gain is the biggest dollar-gain for gold as back as daily history is available from the Comex exchange -- January 1975. It marked the largest percentage gain in nine years. Most-active December gold rose $70, or 8.9%, to settle at $850.50 an ounce.
The contract continued surging in after-hours trading, extending the day's high to $872.90 an ounce. Wednesday's rally puts gold back in the black for year-to-date, up 1.4%. Gold benefited mightily on safe-haven money flows as equities fell sharply and the wider market is in the grips of "real fear of systemic risk," said Stephen Platt, analyst with Archer Financial Services.
That risk has been highlighted by the American Investment Group (AIG) bailout, he said. The government takeover of the troubled insurer helped to comfort commodity markets in the near term, analysts said, allowing some consolidation after this week's volatility.
The Federal Reserve said late Tuesday that it would lend the troubled insurer $85 billion and the U.S. government would own a 79.9% equity stake. "The market is certainly fearful of that systemic risk moving into the global market," he said.
"Those fears have not passed." Among the unsettling factors, market participants were disconcerted about the amount of debt the U.S. government is absorbing for the financial bailouts, said Ralph Preston, senior market analyst with Heritage West Financial. Although financial worries have plagued markets all this week, gold's reaction to the news was restrained.
Gold saw some gains on Monday and dropped Tuesday as investors preferred U.S. Treasurys as a flight-to-quality preference rather than gold. But that rally has become "long in the tooth" and gold is now benefitting as some of that money begins returning to the metal, said Charles Nedoss, senior account manager and metals analyst with Peak Trading Group.
Activity In Other Key Commodity Markets:
CRUDE OIL: Futures leaped more than $6 a barrel Wednesday, shaking off recent weakness after U.S. stockpiles slumped and the dollar fell against the euro. October crude oil gained $6.01, or 6.6%, to $97.16 a barrel on the New York Mercantile Exchange.
A weekly government report showed U.S. crude oil, gasoline and distillate fuel stocks all fell in the week ended Sept. 12. While the declines were near or less than expectations, they indicated a tightening market, analysts said. Nationwide gasoline inventories were the lowest on record dating to 1990.
NATURAL GAS: Prices soared on supply concerns and rising crude oil prices, but failed to breach $8 a million British thermal units as traders looked ahead to milder fall weather. October Natural gas on the New York Mercantile Exchange gained 63.1 cents higher, or 8.67%, at $7.91/MMBtu in after reaching a high of $7.989 earlier in the day.
Wednesday's rally was driven by fears that restoring gas production that was shut in ahead of hurricanes Ike and Gustav would take weeks. About 82.3% of natural gas production in the Gulf, or 6.09 bcf of the 7.4 bcf/d normally produced in the region, was still offline Wednesday, according to the U.S. Minerals Management Service.
-By Debbie Carlson; Dow Jones Newswires; 312-750-4072; debbie.carlson@dowjones.com
(Matt Whittaker contributed to this article)