MARKET SAVVY : SAVVY CONFIDENTIAL: A Briefing for Investors : Gold Prices Jump 2%, Biggest Gain in a Year

Gold jumped more than 2%--its biggest gain in a year--on Tuesday after a 25-ton British bullion sale was unexpectedly completed at above-market prices.

Gold Fields Ltd., the world’s second-biggest gold producer, said it bought about 12% of the bullion, saying the price was very cheap. The sale came as a tumbling dollar made the metal cheaper in Asia, the leading consuming region. Jewelers preparing for their peak season of demand at the end of the year have seen gold prices drop 14% in yen terms over the last three months, even as the metal’s value in dollars was little changed.

“It all demonstrates that the gold market is very tight,” said Leonard Kaplan, chief bullion dealer at LFG Bullion Services in Chicago. “Demand is excellent, as the dollar has declined and [made] precious metals very cheap in foreign currencies.”

The auction fetched 27 cents over spot London gold prices. The first British gold sale on July 6 fetched a price that was $1.05 an ounce below the spot price of gold at the time.

Gold for December delivery rose as much as $5.80, or 2.3%, to $260.20 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day gain since September 1998. But prices still are down about 25% from two years ago as central bank sales and declining demand from Asia kept inventories high.