Gold surged 2.5 percent on Friday, bouncing $40 per ounce off session lows as fears that unrest in Egypt will spread across the Middle East prompted investors to buy the precious metal as a safe haven.

Egypt's president Hosni Mubarak imposed a curfew and ordered troops to back up police as they struggled to control crowds who flooded the streets of Cairo and other Egyptian cities on Friday to demand that he step down.

"All things Egypt. There is a major flight to quality...a stronger dollar, and flight into bonds, flight into gold," said Frank McGhee, head precious metals trader of Integrated Brokerage Services in Chicago.

"Gold is benefiting more than bonds at this particular point. People are looking at gold as a safe haven in times like this, and it's certainly showing it," he said.

Investors often turn to gold as an insurance at the expense of paper currencies during times of political and economic uncertainties.

Spot gold rose 2.3 percent to $1,343.01 an ounce by 11:58 p.m. EST (1658 GMT), the largest one-day gain in nearly 3 months. U.S. gold futures for February delivery rose $24.7 to $1,343.10 an ounce.

The metal had touched a four-month low of $1,308.00 an ounce, having fallen 2.6 percent on Thursday on a run of firmer than expected U.S. economic data which boosted confidence in the recovery.

Gold initially weakened after data showed the U.S. economy gathered speed in the fourth quarter with the biggest gain in consumer spending in more than four years.

"Though the GDP data came in slightly below expectations... (its acceleration) was driven by two factors which are very important when looking forward, and that is the more important factor in assessing the future course of the U.S. economy," said Quantitative Commodity Research consultant Peter Fertig.

The dollar and U.S. Treasuries rose on as Egypt's protests drove investors to seek safer assets. Stocks fell around the world and crude oil prices rose.

"The market is a little sensitive when people take to the streets as it reminds them of the riots in Greece a year ago, and that did lead to a flight into the safety of U.S. Treasuries," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.


Investment demand for gold has been soft this year, with holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, down another 3 tonnes on Thursday.

London's ETF Securities reported a 1.3-tonne outflow from its gold exchange-traded products on the same day.

The Wall Street Journal said on Friday hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market.

Spot silver rose 3.9 percent to $27.92 an ounce. Holdings of the world's largest silver-backed ETF, the iShares Silver Trust, fell to 10,426.43 tonnes on Thursday from 10,447.70 tonnes.

Platinum climbed 1.1 percent to $1,800.99 an ounce and palladium gained 1.5 percent to $814.47.


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