Gold rallied above $1,500 an ounce for the first time on Wednesday, extending this week's record run as investors hedged growing inflation risks and bought into a broad commodities rally as the dollar slumped.
Mounting evidence of quickening inflation in major Asian economies such as China and India were echoed in Latin America on Wednesday, with Brazilian prices nearing a government ceiling and Mexico's yearly rate exceeding a key target.
The break-even rates on U.S. Treasury Inflation-Protected Securities (TIPS), which measures investors' inflation expectations, rose for a second day.
A second day of deep losses for the dollar and rallies in oil and grain markets that fueled further inflation concerns also buoyed bullion, which once again rose in tandem with riskier assets like equities as investors turned to gold as a store of value.
The U.S. government at this point of time has not corrected its fiscal imbalance, and the Federal Reserve continues to maintain exceedingly loose monetary policy, which has the risk of further debasing the dollar, said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which manages $53 billion in client assets.
Gold prices tend to rise with a declining dollar.
Spot gold rose to an all-time high of $1,505.70 an ounce. It was last up 0.4 percent at $1,500.50 by 3:31 p.m. EDT, having risen almost 4 percent over the past eight days. The metal is set for its 11th successive quarterly gain.
While well below their inflation adjusted highs of more than $2,200 struck in 1980 -- when bullion prices spiked in response to the Soviet invasion of Afghanistan -- gold has doubled since the lows of 2008 and risen six-fold since 2001.
Silver also surged above $45 for the first time since 1980, when the Hunt Brothers of Texas cornered the silver market.
Gold has notched new records for four consecutive days, aided in large part by Monday's threat of a downgrade to the United States' triple-A credit rating.
This is just a continuation of a longer-term move being driven by worldwide monetary policies and specifically here in the United States, said Michael Cuggino, portfolio manager of Permanent Portfolio Funds with $12.5 billion in mutual fund assets.
Is the U.S. debt ceiling going to be raised? If the debt ceiling is not raised, what happens to the U.S. debt when it matures? Cuggino asked.
The White House and congressional leaders must agree on a deal on raising the $14.3 trillion cap on borrowing in the next few weeks or the United States will be at risk of defaulting on its debt, which would have dire consequences both for the country and global markets.
INFLATION PRESSURE CREEPING UP
Signs of simmering inflation across the world underpin gold. The break-even rates on the expected new five-year U.S. TIPS rose for a second day to 2.36 percent, roughly 1 basis point higher than late Tuesday.
In Brazil, annual inflation sped dangerously near a government ceiling in the month to mid-April, while Mexico yearly inflation rate climbed above policymakers' target rate of 3.0 percent as investors prepare for higher borrowing costs early next year.
Gold buying in the Asian countries is being fueled by rising consumer incomes and higher inflation. Both China and India reported higher than expected inflation last week.
While gold investors in Western markets have been motivated chiefly by risk aversion in recent years, the precious metal is a much more deeply established asset in Asia, being bought in the form of bullion bars and coins. India and China are by far the world's biggest bullion consumers.
DOLLAR, CREDIT RATING IN FOCUS
The metal is expected to be underpinned by uncertainty over how the United States will adjust monetary policy after the Federal Reserve's $600 billion government bond-buying program -- known as quantitative easing -- comes to an end in June.
If the S&P eventually cuts its long-term rating on the United States, it will weigh heavily on the U.S. dollar, often used as a global reserve currency, and economic stability throughout the world - a perfect recipe for gold rally.
Gold has long been seen as the ultimate haven from risk. During the financial crisis that rattled markets in 2009 and 2010 it was heavily bought on that basis, but its rally has since taken on a momentum of its own, luring more and more speculators who have begun to view it as a one-way bet.
Gold has been acting as a currency in its own right, and that is why we are up at $1,500, said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
(Additional reporting by Richard Leong in New York, Nick Trevethan, Lewa Pardomuan and Rujun Shen in Singapore and Chikako Mogi in Tokyo; editing by James Jukwey and Lisa Shumaker)