By Clara Denina
LONDON (Reuters) - Gold rose more than two percent to a 4-month high on Thursday after a shock move by Switzerland to abandon its three-year cap on the franc sent global shares and bond yields into turmoil.
Spot gold rose as much as 2.4 percent to its highest level since Sept. 8 at $1,260.30 an ounce in earlier trade and was up 2.3 percent at $1,257.46 an ounce by 1443 GMT.
U.S. gold futures for delivery in February rose 2 percent to $1,259.40 an ounce.
"Gold is gaining from a risk-off situation because nobody expected the Swiss central bank not to keep that cap, and this has created potential big losses in many places and is obviously triggering some flight to safety," Saxo Bank senior manager Ole Hansen said.
U.S. stocks fell, the benchmark 10-year U.S. Treasury yield fell to around 1.8 percent and the dollar was down 0.1 percent against a basket of main currencies after the Swiss National Bank's move, which is seen potentially preceding outright money-printing by the European Central Bank at its policy meeting next week. [MKTS/GLOB]
"This is happening a week before the ECB meeting, which could add even further pressure to the euro ... more QE in the euro zone is a double-edge sword for gold in dollar-denominated terms but gold in euro terms should benefit," Hansen said.
Gold has benefited from years of increased central bank liquidity following the 2008 financial crisis, but more monetary stimulus in the euro zone could result in a stronger dollar and in turn lower gold prices.
Euro-denominated gold rose to a new peak of 1,083 euros an ounce, its highest since May 2013.
"What people are going to be watching is whether the rally can be sustained ...if there's enough conviction, prices could go as high as $1,320," Sharps Pixley CEO Ross Norman said.
"And we may still see times when the dollar and gold move higher in tandem," Norman added. "If the dollar moves strongly higher and correspondingly important currencies crash, then you are going to see people in those countries buy a lot of gold."
Gold prices are up nearly 6 percent so far this month, after two straight years of declines, but the outlook for the year remains uncertain.
UBS lowered its gold price forecast for the year to $1,190 from $1,200, saying it had underestimated the downside risks earlier.
Silver climbed to a one-month high of $17.21 an ounce and was up 1.6 percent at $17.10 an ounce, platinum rose 2.3 percent to $1,255.46 an ounce and palladium gained 0.7 percent to $778.22 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy and David Evans)
