Gold hit record highs at $1,216.75 an ounce in Europe on Wednesday as investors bet on higher prices, with funds lengthening positions due to expectations of a fresh leg of dollar weakness and more central bank buying.
The metal also reached all-time highs in euro and sterling terms and a historic peak when priced in the Japanese yen, according to Reuters data, indicating independent gold strength.
Spot gold was bid at $1,208.20 an ounce at 1343 GMT, against $1,196.00 late in New York on Tuesday.
U.S. gold futures also hit a record at $1,218.40 an ounce. Gold for February delivery on the COMEX division of the New York Mercantile Exchange was later up $9.60 at $1,209.90.
The dollar held steady versus the euro on Wednesday, but analysts said low U.S. interest rates and improving risk appetite are set to weigh on the U.S. currency.
Investors are sailing out of the safe havens into more risky assets, and this is weakening the U.S. dollar, said Peter Fertig, a consultant at Quantitative Commodity Research.
The facts that stock markets are performing better and we have weakness in the dollar are supportive for precious metals. From that perspective I believe this rally remains sustainable.
Investment interest in gold remained firm, with holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, rising to 1,130.604 tons on Tuesday, near the record 1,134.03 tons they hit in June.
Gold also hit historic highs in sterling terms and when priced in the euro and yen. Click here: http://graphics.thomsonreuters.com/129/GLD_CURR1209.gif.
Traders said options-related activity was also lifting gold toward fresh peaks.
At these levels the option strikes are the main focus, said Simon Weeks, head of precious metals at the Bank of Nova Scotia. Yesterday there was a struggle around $1,200, and now that we are above there, there will be an increasing pull toward $1,250.
In the physical market, the flow of scrap gold re-entering the Indian market -- which usually increases when prices rise -- tailed off as sellers sought still higher prices, dealers said.
Gold demand in India cooled on Wednesday as prices jumped to record highs. Separately, data showed Turkey imported 393 kg of gold in November, up from 15 kg a year before but down from 4,209 kg in October.
While physical demand in many traditionally key gold buying countries has been soft, a dip in such buying is being easily offset by rising speculative interest.
Speculators are betting on further buying by central banks, particularly in Asia, after many years of net official sector sales. India's purchase of 200 tons of gold, announced in November, sparked a 13 percent prices rally that month.
The move strengthened speculation that other emerging country central banks will follow suit.
We believe that a key fundamental supporting factor for gold is the continuing shift of central banks and governments from being net sellers of gold to net buyers, said Daniel Sacks, portfolio manager of the Investec Global Gold Fund.
The gold bull market of the 1970s was in part ushered in by central bank hoarding of gold, he said. With central banks likely to be net gold purchasers this year for the first time since 1988, a similar scenario appears to be taking shape.
Strength in gold has lifted other precious metals. Silver and palladium rallied to their strongest levels since July 2008. Spot silver was later bid at $19.24 an ounce against $19.07, and palladium at $385 against $387.50.
Spot platinum rose as high as $1,493.50 an ounce, its highest since August last year. It was later at $1,482.50 an ounce against $1,478.50.
For graphic of gold's inflation-adjusted high, click on: http://graphics.thomsonreuters.com/129/GLD_PRCINF1209.gif
(Editing by James Jukwey)