Isra-Mart srl: PRECIOUS METALS: Gold Hits New High As Risk Aversion Returns

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Spot gold moved to record territory rising by more than 1% in the Asian session as bleak economic data from both sides of the Atlantic prompted a broad sell-off in regional equity markets and in riskier assets as concerns of a double dip recession gained momentum.

Gold rose to a record high of $1,920.49 a troy ounce in the spot market, eclipsing its earlier record reached August 23 as renewed fears gripped markets over the financial health of euro-zone economies as a sovereign debt default by Greece looks increasingly likely.

At 0555 GMT, spot gold was at $1,918.10/oz, up $17.80 from its previous close.

Traders said sentiment across markets is one of uneasiness and that is helping gold push higher.

The metal is considered a safer bet and retains its value during economic turmoil while the value of most assets decline.

"If we get another big sell-off in European equity markets and in bonds, we will see gold reasonably well-supported on the back of that," said IG Markets institutional dealer Chris Weston.

Weak purchasing-managers-index data from France, Germany and the euro-zone as a whole and concerns about growth damped investor sentiment and increased the safe-haven flight of capital to gold, traders said.

The lawsuits filed against 17 lenders Friday by the U.S. federal housing regulator, accusing them of selling $196 billion of risky home loans over fours years to Fannie Mae and Freddie Mac without adequately disclosing risks also added to the week sentiment in Asia.

Traders said gold could set new highs with Barclays Capital predicting - based on technical charts - that prices will initially hit $1,930/oz and then towards $1,970/oz in the near future.

But Ross Norman, chief executive officer of London-based bullion dealer Sharps Pixley said gold is trading 27% above its 200-day moving average, which indicated that it is currently over-extended.

"All things being equal, we should have seen a correction or at least a reasonable period of consolidation," said Norman, adding that gold bypassed that stage and is demonstrating a keenness to move much higher.

While investment demand has soared, high gold prices have pushed physical buyers to the sidelines, a Hong Kong-based trader said, adding that the rising demand for coins and bars, seen a few weeks ago, appeared to be stabilizing.

Traders had expected physical demand in gold to pick up as the market moves closer to the Indian festive and wedding season that starts in October. Gold jewelry demand usually soars during this period as the metal is considered auspicious and gifted as wedding presents.

Silver, too is expected to gain in line with gold, Barclays Capital said, adding it expects the metal to test $44.23/oz very soon.

Once the market moves above that level, "we would raise out target to $46/oz," it said.

At 0555 GMT, silver was at $43.13/oz, up 26 cents; platinum was up $6 at $1,891/oz and palladium was $5 higher at $766/oz.

Traders said platinum has slipped below gold as the challenging economic environment makes it increasingly difficult for platinum to keep pace with gold.