Gold rose more than 1 percent to an all-time high on Tuesday above $1,432 an ounce as chaos in Libya and political turmoil in the Arab world prompted safe-haven buying and soaring oil prices boosted bullion's inflation hedge appeal.
Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading across Libya, Bahrain, Yemen and Iran, fueled a 6 percent rise in gold prices in February.
What gold needed was a catalyst, and it found it in the form of tensions that are surfacing in the Middle East and rising oil prices, which served as an inflationary threat and also led to political instability, said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a brokerage that manages $53 billion in client assets.
On Tuesday, Iranian security forces fired teargas and clashed with anti-government demonstrators protesting the treatment of opposition leaders. The United States said Libya could descend into civil war if Muammar Gaddafi refuses to quit, after word of unspecified Western military preparations.
Gold has rallied strongly since political unrest sent U.S. light sweet oil futures soaring nearly $3 to just under $100 a barrel on Tuesday, driven by worries about supply disruptions. Wall Street lost over 1 percent as oil's surge fanned concerns about a dampening effect on economic growth.
Spot gold rallied to a record of $1,432.10 an ounce, surpassing its previous record of $1,430.95 set on December 7. The metal gained 1.4 percent to $1,430.69 an ounce by 2:50 p.m. EST (1950 GMT), its largest one-day gain since January.
U.S. April gold futures settled up 1.5 percent at $1,431.2 an ounce, with volume about 10 percent lower than its 30-day average and in line with lower-than-usual recent turnover.
Bullion rose 6 percent in February, its largest monthly rise since August. It traded mostly sideways last week, then gained on Tuesday on resurgent safe-haven bids.
Silver hit a fresh 31-year high at $34.59 an ounce and later climbed 2 percent to $34.46. Silver has risen about 11 percent this year.
The gold-silver ratio, which shows how many ounces of silver it takes to buy one ounce of gold, approached a 13-year low. Silver has risen amid limited supplies for near-term delivery and on prospects of rising demand for industrial metals as the economy recovers.
BERNANKE COMMENT HELPS
Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee on Tuesday that the recent surge in oil prices was unlikely to have a big impact on the U.S. economy, but could dampen growth and raise inflation if sustained.
Bernanke's comments boosted gold as he offered no hint that the U.S. central bank was considering winding down its loose monetary policy, which also sent the U.S. dollar to a 3-1/2 month low against major currencies.
From the start of crude oil's ascent based on Libya, you are seeing general risk issues become more of a front burner in peoples' psyche, said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
You've had the U.S. long-term Treasuries rally. You've had a lot of the things that traditionally occur when people start to get afraid, all except the U.S. dollar rally, Dailey said.
Since the Fed cut interest rates to 0.25 percent in response to the global financial crisis in late 2008, gold has risen 70 percent.
In a reflection of investor ambiguity toward gold at record prices, bullion held by SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell a fifth consecutive month in February, marking its worst string of declines since the creation of the fund in 2004.
Platinum group metals investors took heart from news that U.S. auto sales rose more than 20 percent in February as the lure of discounts from automakers outweighed concerns about higher oil prices.
Platinum gained 1.8 percent to $1,837 an ounce, while palladium climbed 2.5 percent to $814.22 an ounce.