Gold jumped 5 percent, its biggest gain in 15 months, as buying by speculators who make trades based on historical price patterns extended a rally fueled by reduced supplies.
Prices that were little changed in early trading soared to an 11-month high after the June contract rose to US$275 an ounce, triggering buy orders that had been placed earlier, traders said.
Contributing to the two-month rally in gold prices was a decline in sales of borrowed gold by producers, analysts said.
"The funds are tripping over themselves to buy" gold, said Donald Eckert, head of precious metals trading at JP Morgan Chase & Co in New York.
"I would have to say a lot of this is technical."
Gold for June delivery rose US$13.80 to US$287.80 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price for a most-active contract since June 30. It was the biggest one-day gain since Feb. 4, 2000.
Prices have been buoyed by a surge in shares of gold-mining companies.
The Standard & Poor's Gold Index has risen 40 percent since March 30, making it the second-best performer in the Standard &Poor's 500 Index during the past three months, behind engineering and construction firms.
Shares of Denver-based New-mont Mining Corp, the second-largest gold-mining company after South Africa's AngloGold Ltd, have risen 41 percent this year.
Five interest-rate cuts by the US Federal Reserve this year contributed to the 11 percent rise in gold prices since the end of March.
The lower rates make it less attractive for producers to borrow gold, sell it and invest the proceeds in securities that pay returns, such as Treasury bonds, analysts said.
Such hedging by gold mining companies contributed to a plunge in gold prices to a 20-year low of US$253.20 an ounce in July 1999.
Mining companies "have had no opportunity to hedge at all this year," said David Mallalieu, an analyst at Scotia Capital in Toronto.
The rally in gold also was propelled by speculators who repurchased contracts they had sold earlier expecting prices to go even lower after a drop to a 17-month low in February.
Hedge funds and other speculators had bought 1,531 more contracts than they had sold as of Tuesday, a report after trading from the Commodity Futures Trading Commission showed.
It was the first time that speculators held a "net long" position since late July.
"It is the speculators who sold gold short who are mainly covering to minimize losses," said Heinz Thoma, a money manager at Global Strategic Management in Annapolis, Maryland, which holds about US$25 million in gold stocks.
Investors have waited nearly two years for such a rally.
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