Gold hit a 28-year high in Europe on Friday as the dollar's continued slide to record lows versus the euro raised the metal's appeal to speculative investors.
Prices later eased as some investors pocketed profits, but overall sentiment remained bullish, traders and analysts said.
Other precious metals also advanced, with silver rising to its highest in more than three months, platinum hitting its highest since early May and palladium touching a five-week peak.
Spot gold rose as high as $739 an ounce, its highest since January 1980, also boosted by technical buying and short-covering. It was quoted at $732.50/733.30 by 11:16 a.m. EDT, against $734.20/735.00 in New York late on Thursday.
We expect further advances into 2008 based on new lows in the U.S. dollar, Deutsche Bank said in a weekly report.
This would, in our view, enable the gold price to move above $800/oz during next year. However, our internal forex flow data suggest the dollar may now be entering oversold territory and that the gold price is ripe for a short term correction.
The euro hit an all-time high versus a broadly weak dollar as investors dumped the greenback after the Federal Reserve's aggressive rate cut this week.
A weaker U.S. currency makes dollar-denominated metals cheaper for investors in other currencies, while gold is also seen as a hedge against oil-led inflation.
Oil prices steadied after hitting record highs this week.
There has been substantial safe-haven buying. The dollar has weakened to record lows and we have revised our forecast up for oil as well. On the top of that environment, there is anticipation of slower U.S. growth momentum and Fed rate easing, said Suki Cooper, analyst at Barclays Capital.
These factors are very supportive for gold and we see prices traveling even higher. The positive investor sentiment is very evident in the ETF positions and also in the Comex futures positions. she said.
Gold spiked to a life-time high of $850 in January 1980 as high inflation linked to strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution prompted investors to buy the precious metal heavily.
A LOGICAL INVESTMENT
If one is concerned about inflation arising as a result of excess credit, then gold is a logical investment because there is no credit risk attached to gold, Stephen Cohen, managing director at hedge fund firm Troika Dialog, said.
There are a number of things moving in favor of gold, but certainly if people thought that central banks were taking a risk with inflation that would be good for gold, he said.
Growth in bullion exchange-traded funds (ETFs) continued as investors diversified their portfolios. Gold used to back StreetTRACKS Gold Shares hit a record high of 577.10 metric tons on Wednesday.
In other bullion markets, the most active gold futures contract for August 2008 delivery on the Tokyo Commodity Exchange hit a high of 2,747 yen per gram, its highest since August 1985, before ending 27 yen higher at 2,746 yen.
The most-active December U.S. gold contract was at $740.30 an ounce, after hitting a 28-year high at $747.10.
In other metals, platinum was last at $1,331/1,335 an ounce, against $1,323.40/1,330.40 in New York. Silver was at $13.41/13.46 an ounce, versus $13.36/13.41, and palladium rose to $338.50/341.50 from $336.40/340.40.
(Additional reporting by Anna Stablum in London)