Gold rallied almost 2 percent to a record near $1,900 an ounce on Monday as a sputtering global economy boosted expectations for further monetary easing, raising bullion's appeal as a hedge against inflation.
Bullion's six-session winning streak came as Wall Street erased early gains. Global markets will focus on Federal Reserve Chairman Ben Bernanke's speech on Friday in Wyoming's Jackson Hole, where policymakers and academics meet once a year to talk shop.
Analysts said anything short of a third round of quantitative easing would likely provide limited support for gold as the Fed had already vowed to keep interest rates low into 2013. Bullion could also correct sharply after it rose 6 percent in the last three sessions, and by $400 since July.
Gold is driven by the expectation that at some point inflation will come back, and a continuation of people looking for a safe haven beside just the U.S. Treasury bonds, said Leo Larkin, metals equity analyst at Standard & Poor's.
It's still susceptible to a pretty big pullback as things are overdone based on technical indicators.
Spot gold was up 1.6 percent at $1,889.29 an ounce by 2:41 p.m. EDT, building on its strongest one-week rise since February 2009. It is one of this year's best-performing assets, now up 33 percent.
U.S. gold futures for December delivery settled up $39.70 at $1,891.90 an ounce. Trading volume totaled around 250,000 lots, in line with its 30-day average and higher than the average volume last week.
Silver rose 1.4 percent to $43.44 an ounce.
The CBOE Gold ETF Volatility Index .GVZ, which is often referred to as the Gold VIX and is based on SPDR Gold Trust options, spiked 13 percent to around 33, its highest in nearly 2.5 years.
As of Friday, SPDR Gold Tryst has surpassed SPDR S&P 500 to be the world's largest exchange-traded fund measured by market value, boosted by soaring gold prices and sagging equity markets amid mounting recession fears.
Last week, holdings of the GLD recorded an inflow over 30 tonnes -- its biggest one-week rise since mid-July -- to 1,290.76 tonnes near its highest level of the year, but below a record of 1,320.4 tonnes set in June 2010.
Investors sought refuge in the yellow metal from the euro zone debt crisis, weakness in the U.S. economy, and volatility in the currency markets.
Analysts are worried that bullion's over 15-percent rally just in August has been overdone, as the relative strength index spiked to 85, near its most overbought level in 12 years, technical charts showed.
People talk about gold as an insurance premium, but right now it's a really high insurance premium to pay, said Bayram Dincer, an analyst at LGT Capital Management.
Bernanke's much-anticipated speech on Friday 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.
Platinum rose 1.5 percent to $1,898.13 an ounce, having earlier hit its highest since July 2008 at $1,897.50. It is trading near parity against gold, with the yellow metal the chief recipient of safe-haven flows.
Palladium rose 2.1 percent to $760.47 an ounce.
(Reporting by Frank Tang; Editing by Dale Hudson and Andrea Evans)