Gold rush squeezes sterling

GOLD soared to $327 an ounce and the euro hit an eight-month high in what is becoming a substantial shake-out on the currency markets, led by a fall in the dollar. Sterling is holding up in dollar terms but its trade weighted index fell 0.5% on Wednesday and has dropped 7.4% since its peak two years ago.

Gold's rise is tightening the squeeze on banks and traders who have been bearish of the metal. It rose to $325 early on in London and topped $327 in the afternoon, its highest fixing level for five years, before closing at $325.

Fears of a war between India and Pakistan and tension in the Middle East have prompted a surge in investment buying. Chancellor Gordon Brown sold a large slice of Britain's gold reserves at $273. Gold is up 17% this year and traders talk of $330 or more.

The dollar has been hit by Wall Street's weakness and the effect of energy trader Enron's collapse. The euro topped 93.5 cents before profit-taking brought it to 93.2 cents.