Gold rallied to fresh record highs in Europe on Thursday as the dollar slid to its lowest this year versus a basket of major currencies, boosting interest in the metal as a haven from currency market volatility.
Spot gold hit a high of US$1,387.10 an ounce and was bid at US$1,382.75 an ounce, against US$1,370.90 late on Wednesday. US gold futures for December delivery were up US$13.90 at US$1,384.40, having peaked at US$1,388.10 an ounce.
Gold prices have risen more than 25 percent this year as the dollar has been battered by expectations that US policymakers will pursue an increasingly loose monetary policy involving quantitative easing to stimulate economic growth.
"If there is further dollar weakness surrounding quantitative easing and the like, it is almost certainly going to be highly supportive for gold," said RBS Global Banking & Markets analyst Daniel Major.
"We are very close to the US$1,400 level, so if we get some more dollar weakness, I would not be surprised to see that in the near future," he added.
Silver prices also rode higher on gold's coat-tails, reaching a fresh 30-year high at US$24.90 an ounce before easing back to US$24.58 an ounce against US$23.89.
The dollar index — which measures the dollar's performance against a basket of six major currencies — hit the year's low on Thursday after Singapore widened its currency's trading band, piling more pressure on to the struggling greenback.
Investors are continuing to dump the US currency on expectations the Federal Reserve will start further money-printing next month, and as tensions rise over the increasing volatility of the foreign exchange markets.
"Although QE expectations are an important element of the rally, currency disputes are also a prime driver of gold prices," said HSBC's Jim Steel in a note. "The recent IMF meeting saw the public airing of sharp disagreements between China and the United States on currency policy."
"The EU has seconded US calls for China to liberalize its exchange rate polices," he added. "Additionally, emerging market nations including Brazil, India, and Thailand have imposed taxes on capital inflows or sought to limit inflows, in an effort to stem currency appreciation."
While these tensions persist, gold is likely to be well supported, he said.
Swiss bank UBS raised its one-month forecast for gold to US$1,425 an ounce from US$1,300, saying it sees limited downside potential for gold ahead of the Fed's November meeting, and its three-month price view to US$1,400 an ounce from US$1,300.
"Gold's climb is not showing any signs of slowing," it said. "US$1,400 is now being eyed as a short-term target, which seems easily achievable as long as the dollar continues to fall across the board."
Gold's rally toward US$1,400 an ounce has outpaced most expectations. A poll conducted at the London Bullion Market Association's annual conference in September gave an average forecast for gold to be trading at US$1,450 by September 2011.