Gold added to its overnight rally early in London on Wednesday, hitting a three-session high above $834 per ounce as the US Dollar slipped on the currency and commodity markets.

Crude oil added 1% after two US cutters delivered emergency food & water supplies to Georgia, but landed their supplies away from the Russian-controlled Black Sea port of Poti – a decision "taken at the highest level of the Pentagon," according to the US Embassy.

The National Hurricane Center meantime said Tropical Storm Gustav will reach the oil-rich Gulf of Mexico by Sunday, potentially threatening US supplies.

Corn and soybeans both rose 1.8% early Wednesday, while the Euro rose 2¢ from Tuesday's six-month low to trade at $1.4760.

Gold rose faster, however, taking the price for Eurozone investors up to a two-week high above €566 per ounce.

"Geopolitical situations will always continue to influence gold's outlook," says today's Gold Market note from Mitsui in London, "and as Russia announced that it has recognized the two rebel regions of Georgia (South Ossetia and Abkhazia) the gold bulls came back in force.

"Russia's move has been widely condemned by the international community and is adding significant support to the precious metals complex."

Germany's Bundesbank – owner of the world's second-largest nationalized gold reserves – last week rejected calls to fund an economic stimulus package by selling a portion of its bullion because "national gold reserves have a confidence and stability-building function.

"This function has become even more important given the geopolitical situation and the risks present in financial market developments."

Gold Bullion held by the Russian central bank rose by more than 50 tonnes in the 12 months to July 2008 – a sudden and sharp increase in its reserves according to official data collated by the World Gold Council.

The previous half-decade saw Russia's gold reserves shrink by almost 16 tonnes. As a percentage of total foreign exchange reserves, however, the proportion held in Gold has fallen to 2.7% – well below the 10% target set by former president Putin in 2006 – thanks to a surging inflow of US Dollars and Euros.

"The market perception [of Russia] is extremely negative," says James Fenkner, head of Moscow-based hedge fund, Red Star Management.

"They’re being perceived as the evil empire. They're going to have to do some serious things to change it."

This morning the Russian RTS stock market lost 1.1% of its value, adding to Tuesday's 6.1% losses as more foreign investors ran for the exits.

Last week the country's gold and foreign reserves shrank by $16.4 billion as the Russian central bank fought to support the Ruble in the currency markets. But the Bank of Russia still holds the world's third-largest forex reserves after China and Japan, currently totaling more than $580 billion.

The Ruble has risen by one-fifth against the US Dollar in the last three years.

Since the start of this year, the Bank of Russia has cut its $100bn exposure to US mortgage-backed securities issued by the ailing Fannie Mae and Freddie Mac agencies by 40%, according to the New York Times.

"The prospect of an increasingly aggressive petro-rich Russia – which prefers the Ruble in its oil trading – could provide more volatility for both the Dollar and oil," notes the Wall Street Journal.

"A tight US election increasingly focused on economics could [also] bring hints of policy fights to come that add more uncertainty."

Russia's crude oil production has risen nearly 60% since prices collapsed to $10 per barrel in the late 1990s, forcing the post-Soviet state into bankruptcy.

Now Russia is the world's second largest producer of crude oil, and the No.1 producer of natural gas.

Gold mining output in Russia – the world's sixth largest producer of the metal – rose almost 10% in the first seven months of this year compared with 2007, the Russian Gold Industrialists Union said today.

It expects gold output for 2008 as a whole to rise by 8%, reaching 176 tonnes, after declining since 2003.

"Are we at the beginning of a new confrontational phase in the alienation of Russia and the West, or will cooler heads prevail and end NATO expansion?" asks Gordon Hahn, adjunct professor at the Graduate School of International Policy Studies in Monterey, writing for RussiaProfile.org.

"Recent events point to the former."

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