Gold rose to a record high for a second straight day Wednesday, breaching $1,440 (U.S.) an ounce as political unrest in Libya and surging oil prices prompted investors to pile in.
Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading to Libya, Bahrain, Yemen, Oman and Iran, fueled safe-haven buying on fears that tensions could flare across the entire region.
"You have political problems all over the world, a Federal Reserve bank that still erred on the side of easing rather than tightening, rising commodities prices in general, and growing disdain for fiat currencies generally," said Dennis Gartman, author of the Gartman Letter, an daily investment newsletter.
"It will be illogical for gold not to be going higher," he said.
Two U.S. warships were passing through the Suez Canal on Wednesday, heading for the waters off Libya to pressure that country's ruler, Muammar Gaddafi, to step down. Gaddafi launched a land and air offensive to retake territory from rebels in Libya's eastern region.
At a meeting of Arab foreign ministers in Cairo on Wednesday, Iraqi Foreign Minister Hoshiyar Zebari said the Libya crisis is an internal Arab affair and foreign powers should refrain from any intervention.
Spot gold rose 0.4 per cent to $1,439.19 an ounce by 12:00 p.m. ET, after peaking at an all-time high of $1,440.10. The metal fixed at $1,435.50 an ounce in London.
U.S. gold futures for April delivery rose $7.90 to $1,439.10.
Gold is building on a 6 per cent rise in February, its biggest one-month climb since August.
World stocks declined as unrest in the Middle East and North Africa drove up oil prices and pushed investors into safer assets.
Rising oil prices will support gold's status as an inflation hedge, analysts said, if they appear to curb global growth. "They could very well impact (growth in) Europe, the United States as well, and indeed China," said VM Group analyst Carl Firman.
"That will give rise to uncertainty, it will lower demand predictions for, for instance, copper, and where it knocks industrial metals and equities, gold will probably benefit," he said.
U.S. crude futures rose above $101 a barrel as escalating violence in Libya threatened the OPEC nation's oil infrastructure and markets braced for a potentially prolonged disruption.
Federal Reserve Chairman Ben Bernanke said Tuesday the surge in oil prices is unlikely to hurt the U.S. economy, boosting gold as he offered no hint that the U.S. central bank was considering winding down its loose monetary policy.
RISK APPETITE WANES
Violence in the region cooled appetite for higher-risk assets such as stocks and boosted so-called safe havens like German government bonds, the Swiss franc and gold.
Silver rose to a peak of $34.96 an ounce, its strongest level since early 1980. It later rose 0.4 per cent to $34.79 an ounce.
Holdings in the world's largest silver exchange-traded fund, the iShares Silver Trust, rose to 10,693.68 tonnes on March 1, their highest since Jan. 14.
The trust reported a slight recovery in its holdings last month after they posted their biggest ever one-month fall in January.
Platinum gained 0.9 per cent to $1,855.49 an ounce and palladium climbed 0.4 per cent to $817.47.