Gold Soars on Flight to Safety, Oil Spikes

Market participants are disconcerted about the amount of debt the US government is absorbing for the financial bailouts, said Ralph Preston, senior market analyst with Heritage West Financial. "The Treasury coming in and bailing out AIG just did it," he said. "I think that was the straw that broke the camel's back. This is like financial Armegeddon."

Other analysts also attributed the rise to safe-haven buying. Money has been flowing into Treasurys amid the recent financial market troubles, but that rally has become "long in the tooth" and gold is now benefiting as some of that money begins returning to the metal, said Charles Nedoss, senior account manager and metals analyst with Peak Trading Group.

Investors are moving back into gold as the metal's technicals improve and the U.S. dollar is looking more vulnerable, Nedoss said.

In energy trading, crude futures jumped more than 6% late in the day, topping $97 a barrel. Oil enjoyed more modest gains for much of the trading session, after the U.S. government delivered a mixed weekly snapshot of the domestic petroleum market.

In its closely watched weekly status report, the Energy Information Administration said U.S. crude, gasoline and distillates stockpiles all fell last week. But the declines were near or below expectations, and the data also showed ongoing weakness in demand in the U.S, the world's largest oil consumer.

"There was no blockbuster shock to these numbers, but they are still solidly supportive overall," Tim Evans, energy analyst at Citi Futures Perspective, said in a note on the data.

The EIA's report showed crude inventories fell by 6.3 million barrels in the week ended Sept. 12, more than a 4.8 million declined expected in a Dow Jones Newswires poll. Gasoline inventories decreased by 3.3 million barrels and distillates fell by 835,000 barrels, both less than expected.

The data reflected reduced operations on the U.S. Gulf Coast as oil companies mopped up after Hurricane Gustav and braced for Hurricane Ike's landfall last Saturday.

U.S. oil demand was down 4.4% in last four weeks from a year ago.

Oil opened higher Wednesday as the market eyed economic relief in the U.S. government's $85 billion bailout of insurer American International Group Inc. and rebounded from two days of steep losses. Oil has declined by more than $50 from its peak close above $145 in July.

Energy analysts at Goldman Sachs chopped their three-month price forecast for benchmark U.S. crude to $115 a barrel from $149, but stood by their bullish view on oil and said "current price levels present compelling buying opportunities." The investment bank is also a leading Wall Street oil trader.

Unrest in Nigeria's oil-rich southern region continued to capture focus as the country's main militant group Wednesday said it bombed a major oil pipeline that may be operated by Royal Dutch Shell PLC and a unit of Eni SpA, the latest in a series of attacks the group has launched in the West African nation since Sunday.