LONDON (Reuters) - Gold hit a record high on Tuesday in its biggest three-day rally since the depths of the financial crisis in 2008, as investor fears over the threat to the global economy from the European and U.S. debt crises hit assets seen as higher risk.
Though spot prices retreated from highs as stock markets opened higher in the United States, they remained up 1.4 percent on the day at $1,739.60 an ounce at 1342 GMT, having earlier peaked at $1,778.29.
"The short run uptrend is intact," said VTB Capital analyst Andrey Kryuchenkov. "Panic dominates for now and even though we have rebounded a bit on the broader market, people will still fear liquidating substantial gold longs."
Gold has risen by about 7 percent this month, driven by flows of cash out of equities, bonds and currencies, after the United States lost its top-notch credit rating.
Investors have lost confidence in the ability of European leaders to stem the spread of the debt crisis that has now engulfed the euro zone's third- and fourth-largest economies, Italy and Spain.
European stocks lost over 5 percent in early trade, higher-yielding currencies slid, German government bonds and the Swiss franc rallied as investors ditched anything perceived to be risky.
"The market could come off from here, but it's headed in a northerly direction," said ANZ head of metal sales Peter Hillyard earlier. "From where we are now, you might think we could see some sort of pull-back. But I'm talking about a momentary thing, a pull-back like the loading of a gun, which then fires away."
Reflecting the rush into gold, holdings of metal in exchange-traded funds rose for a twelfth day to an all-time high near 70 million ounces, equivalent about half of total supply in 2010, based on World Gold Council data.
The European Central Bank bought Italian and Spanish bonds on Monday to try to stem the spread of the region's debt crisis, but in doing so found itself locked in full-blown conflict with the German central bank.
The euro took heart from the ECB's efforts, rallying 0.6 percent against the dollar, but held near record lows against the safe-haven Swiss franc.
Gold priced in euros hit an all-time peak above 1,250 euros an ounce and was set for its biggest two-day rally since May 2010, when the euro zone debt crisis first flared. Gold in sterling and yen also hit records.
Global equities recovered early losses to trade up 0.5 percent in midafternoon trade, as U.S. equity markets opened higher. However, they have still fallen by 13.3 percent so far in August and are set for their worst monthly performance since late 2008.
Gold's upward progress has attracted some profit-taking from investors who have scrambled to plug holes in their portfolio from the rout across the stock markets.
Top asset manager BlackRock will use profits it is making in gold and bond markets to seek out bargains in falling global equity markets, James Holt, investment strategist at the world's largest money manager, said on Tuesday.
However, analysts said that the current push into gold appeared to be fairly solid.
"The ingredients are all in place for a stronger gold price, as the metal is not subject to the risk of intervention or quantitative easing," said UBS in a note.
"This doesn't mean that pullbacks won't occur, and though some of these may be severe, we believe dips will be bought. Comex net longs may be at record levels, but current gold buying is very broad-based, with a strong physical bias which provides much support," it added.
Elsewhere silver fell 2.8 percent on the day to $37.87 an ounce, pushing the gold/silver ratio to 46.0, a six-month high in the outperformance of gold versus silver.
Platinum rose 1.5 percent to $1,738 an ounce, while palladium rose 2.3 percent to $731.47.
Of vital importance to markets later in the day will be the outcome of the meeting of the U.S. Federal Reserve's policy-setting committee, which many hope will signal its intention to support the economy and restore some stability to markets.