Gold prices rallied toward $1,900 an ounce on Monday as concerns over the global economic outlook fueled interest in the precious metal as a haven from risk and due to talk that weak U.S. growth could spark a further round of monetary easing.
A recovery in equity markets as European trade got underway helped pull gold from its highs, but prices remained elevated as trading across the financial markets stayed choppy.
Spot gold rose as high as $1,894.10 an ounce and was up 1.1 percent at $1,878.59 an ounce at 6:14 a.m. EDT, building on its strongest one-week rise since February 2009 last week. It is one of this year's best-performing assets, now up 33 percent.
Gold has benefited from the ultra-loose U.S. monetary policy of recent years, with successive rounds of quantitative easing -- which translates to printing money -- undermining the dollar and keeping real interest rates low.
Speculation that persistent weakness in the U.S. economy could lead to fresh stimulatory measures, such as a third round of QE, is continuing to support the precious metal.
There has been a heavy round of speculation that the Fed could be pushed (into another round of) quantitative easing sooner than thought, as there haven't been any signals of a possible economic recovery, said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.
Talk of intervention in the currency markets by the central banks of Japan and Switzerland also helped gold as it curbed the appeal of the yen and Swiss franc.
With gold being the only safe haven ... which cannot be intervened (in), investors are left with very less choice other than jumping into the chase, despite being late, said Unni.
On Friday Federal Reserve President Ben Bernanke will give a much anticipated speech at a symposium at Jackson Hole, Wyoming, which will be closely watched for any signs of Fed policy direction.
At the same meeting a year ago, Bernanke announced a $600 billion bond-buying program that sparked a rally in gold.
Growing speculation that Fed Chairman Bernanke will hint at further easing in his Jackson Hole speech is prompting investors to buy gold here, said UBS in a note.
But should Bernanke put a damper on QE3 expectations, the yellow metal could well experience the correction that potential investors have been impatiently awaiting.
HOSTAGE TO FORTUNE
Gold remains a bellwether of sentiment across the financial markets. It hit record highs as world stocks earlier fell toward 11-month lows and the euro and oil prices slid, with concerns about a global economic downturn prompting investors to sell risky assets.
An uptick in stocks as European trading got underway helped those assets recover, however, while pulling a number of so-called safe-havens -- German bond futures, the Swiss franc, and gold -- from their early highs.
Interest in gold-backed exchange-traded funds recovered last week, with holdings of the largest, New York's SPDR Gold Trust, recording its biggest one-week inflow since mid-July last week, of just over 30 tonnes.
Meanwhile data on Friday showed money managers scaled back bullish bets in gold futures and options for a second week as gold's 2 percent rise prompted some investors to liquidate positions.
Platinum meanwhile climbed 0.9 percent to $1,888.38 an ounce, having earlier hit its highest since July 2008 at $1,895 an ounce. It is, unusually, trading near parity with gold, with the yellow metal the chief recipient of safe-haven flows.
Elsewhere silver was up 2.2 percent at $43.79 an ounce, while spot palladium was up 0.5 percent at $748.43 an ounce.
(Reporting by Jan Harvey, editing by Jane Baird)