Gold futures rallied on Thursday reaching a record-breaking high with silver also rising after the dollar slumped on news of a further interest rate cut by the central bank.

Gold for February delivery soared to a new all-time high of $897.30 an ounce on the New York Mercantile Exchange, surpassing the previous record set on Wednesday of $894.40 an ounce.

February gold finished up $11.90 at $893.60 an ounce on the New York Mercantile Exchange.

Gold rallied 31 percent last year as the Fed slashed rates by 1 percentage point to 4.25 percent, a two-year low.

Federal Reserve Chairman Ben Bernanke's prepared remarks confirmed the Fed is ready to act aggressively in a bid to bolster the economy. Investors took this as a sign that the central bank will further cut interest rates at the Federal Open Market Committee meeting which will be held on January 29-30.

We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks, Bernanke said at the Washington DC Luncheon.

In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary, he added.

The dollar fell sharply following Bernanke's comments. The dollar index, which tracks the performance of the greenback against a basket of major currencies, dropped 0.7 percent to 75.885.

Silver futures for March delivery rose 43.5 cents, or 2.7 percent, to $16.275 an ounce. The precious metal climbed 15 percent last year. The price earlier reached $16.355, the highest since January 1981.