Gold surged more than 2 percent to a record above $1,270 an ounce Tuesday, its biggest one-day gain in four months, as investors sought shelter from economic uncertainty and fled the U.S. dollar.
In a mixed day for commodity and financial markets, the dollar fell across the board on a range of factors including a Japanese political vote that dimmed the risk of yen intervention and the breach of a key technical level.
Gold also gained on concerns that more stimulus may be needed to get a shaky global economy firmly back on track, one of the factors that have underpinned the metal's 16 percent increase this year as major investors stock up on bullion.
"There is a lot of volatility and reaction to data ... people are looking for that defensive asset," Credit Suisse precious metals strategist Tom Kendall said.
"Equity markets just remain very, very lacking in confidence, no one is prepared to put positions on and stick with them for any length of time," Kendall said.
Spot gold was at $1,272.40 an ounce by 12:08 p.m. EDT (1608 GMT), up from $1,245.25 the day before and having hit a record high of $1,274.75. U.S. gold futures for December delivery were up $26.60, or 2.1 percent, at $1,273.70.
COMEX gold floor trader Jonathan Jossen said buying related to bullish option-spread strategies had lifted gold futures.
The gold price also tends to rally in September ahead of the Indian wedding season and Hindu religious festivals which are major gold-buying events, Jossen said.
Although gold has held near record highs for a few weeks, the market is now in the full throes of the buying season in the world's biggest consumer, India, which seems undeterred by the price strength.
This year has seen an expansion in open interest in U.S. gold futures and hefty flows into exchange-traded products backed by physical bullion. Even if economic data improve, some analysts believe gold has room to rally further.
"The funds are certainly doing some buying ... who else is it going to be? It's not producers buying it back, it's investors. And investors, whether rightly or wrongly, believe in this and that is the message," said ANZ head of sales Peter Hillyard.
"It's going up for all the same reasons. People are fearful still. Little things come into the market, little factors that awaken people's interest in gold," he said.
The euro rose against the dollar after breaking a key area of resistance, while U.S. Treasury prices rallied as a report showing sturdy consumer spending in August failed to shift investors' expectations for a slowdown.
"All four precious metals are really keeping a very close eye on the U.S. dollar right now and if the dollar doesn't 'shape up' as such, this safe-haven buying will continue in the precious metals," said Afshin Nabavi, head of trading at MKS Finance.
Gold could rally above $1,300 an ounce this year, setting successive all-time highs, as uncertainty about economic recovery and a sovereign debt crisis stoke investment interest, metals consultancy GFMS Ltd said in a closely watched report.
Across the rest of the precious metals complex, silver traded at its highest in 2-1/2 years, helped by robust Chinese industrial output and firm base metals, though the safe-haven effect boosting gold was also a driving force.
Spot silver last fetched $20.41 an ounce, up from $20.02 the day before and on course for its third consecutive day of gains.
In the platinum group metals, platinum leapt to its highest since early August, just below $1,590 an ounce, to be last quoted at $1,588.00 against $1,543.65 on Monday.
Palladium hit its highest in four months, trading above $550 an ounce.
Palladium was last at $550.50, up from $524.95 on Monday, set for its biggest daily rally since late May.
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