Gold briefly rose within striking distance of an all-time high above $1,060 an ounce Monday as the dollar's weakness increased the appeal of bullion as a hedge against falling currencies.
Rising open interest and record noncommercial long positions in the U.S. gold futures market underscored strong investment demand, but analysts also warned of a possible pullback due to profit taking.
Neal Greenberg, trader with New Jersey-based TraderNeal, said that gold was mainly driven by a weakening dollar as the U.S. Federal Reserve is not likely to raise interest rates any time soon.
"Gold is not being used an inflation hedge as much as it's being used a hedge against currencies. It seems like there is a worldwide race from all central banks to devaluate their currencies," he said.
Last week, gold rose 5 per cent as dollar weakness pushed the metal to a series of record highs. Investors bought the metal as an alternative to paper currencies, and a weaker dollar also makes gold cheaper for non-U.S. investors.
Spot gold was at $1,054.95 an ounce at 2:32 p.m. EDT (1832 GMT), up from $1,048.25 late in New York on Friday but off a record high of $1,061.20 set last week.
Most-active December gold futures settled up $8.90 at $1,057.50 an ounce on the COMEX division of the New York Mercantile Exchange.
The dollar dropped to session lows against the euro due to concerns about the greenback's status as the preeminent reserve currency.
Rising investment demand also boosted prices, even as the world's largest gold-backed exchange-traded fund SPDR Gold Trust reported no change in holdings.
"We're seeing a huge amount of investor interest, be it paper interest through speculators on COMEX or ETF holdings. Given that short term investor interest seems to be driving prices, that is setting the tone," said Suki Cooper, analyst at Barclays Capital.
"The currency movements are pivotal, so if we see the dollar strengthening, I think you could see gold prices start to lose their momentum," she added.
But noncommercial net long positions in COMEX gold futures rose to an all-time high of 239,668 lots in the week ended Oct. 6, up 3.6 per cent from a week before, data from the U.S. Commodity Futures Trading Commission showed. Meanwhile, open interest for gold futures climbed above 500,000 lots.
"As long as gold is on the rise and the most recent long positions remain in profit, this does not represent a risk factor just yet," Commerzbank said in a note.
However, Commerzbank said that speculators could square their long positions, potentially sending prices to under $1,000 an ounce.
Among other precious metals, spot silver was at $17.73 an ounce against $17.67. Platinum was at $1,337 an ounce against $1,332, while palladium was at $323.50 against $317.50.
Palladium climbed to its highest level since August 2008 on Friday, supported by concerns over tightness in Russian supply, traders said, and by strong technical support.