Gold eked out a tenth straight gain Friday, matching a record winning streak set four decades ago, as some began to seek a hedge against the growing threat of a catastrophic U.S. government default.
A rally that ignited two weeks ago when euro zone debt fears revived has extended its run into record territory this week as President Barack Obama and Republicans traded demands for a serious deficit plan, deepening a stalemate in negotiations to raise the U.S. debt limit before Aug. 2.
Gains in crude oil, a plunge in U.S. consumer confidence and concerns about euro zone debt contagion also helped the metal to its largest two-week gain in over two years, rising more than 7 per cent since the start of July.
"The longer the debt talk drags on, the more you would want to own a safe haven like gold. The crude oil market is also rallying quite nicely, and that's a big element in support for gold," said James Steel, chief commodity analyst at HSBC.
Spot gold was up 0.3 per cent at $1,591.50 (U.S.) an ounce by 3:10 p.m. (ET). It failed to hit a new peak after rallying to all-time highs in the previous two sessions, but stayed near the record of $1,594.16 hit on Thursday.
U.S. gold futures for August delivery settled up 80 cents at $1,590.10 an ounce, after trading between $1,576 and $1,592.80. Trading volume reached 120,000 lots, sharply lower than turnover in the previous two sessions.
Spot silver gained 2.2 per cent to $39.02 an ounce, near a two-month high of $39.34 set on Thursday.
Gold should rise to record highs above $1,700 an ounce in the next few months, based on technical charts. One analyst said that in theory, it could reach a shocking $5,000 an ounce should equity markets correct sharply.
Most financial markets have thus far shown few signs of preparing for the once-unthinkable scenario under which Washington would be unable to pay its bills beyond August.
But a series of rating warnings this week has focused minds on the possibility -- though still deemed remote -- of a default that could jeopardize the dollar's reserve-currency status and increase bullion's safe-haven appeal.
Republicans in the House of Representatives said they would vote next week on a bill to raise the debt ceiling by the $2.4-trillion Obama has requested as long as Congress adopts a balanced-budget amendment -- an unlikely prospect.
Bullion prices held onto small gains after an industry health check aimed at reviving investor confidence showed that eight European banks are not strong enough to withstand a prolonged recession and need to raise 2.5 billion euros in capital.
Gold's gains appeared limited after U.S. Federal Reserve Chairman Ben Bernanke said on Thursday the central bank was prepared to act if the recovery faltered, but made clear the Fed was not at that point.
GOLD CHARTS POINT TO OVER $1,700
Gold should rise to record highs above $1,700 an ounce in the next few months based on the size of its past rallies and Fibonacci number projections, technical analysts said.
Gold could rise to an area between $1,870 and $5,000, with the top end of the forecast based on a ratio of bullion's performance to the Dow Jones industrial average if there were another shock similar to the Great Depression, research firm Capital Economics said in a note.
Growth in the bullion holdings of SPDR Gold Trust , the largest gold-backed exchange-traded fund (ETF), has lagged the price gain of the metal. During gold's 10-day rally, the ETF was up less than 20 tonnes to 1,225.4 tonnes, or below 1.5 percent, far from a record 1,320.4 tonnes set in June 2010.
HSBC's Steel said the rate of increase in bullion holdings often slows as an ETF is maturing in its product cycle. The SPDR Gold Trust was launched in 2004.
Spot platinum fell 0.4 percent to $1,754.24 an ounce and palladium rose 0.6 percent to $777.47 an ounce.