Gold surged to a new 25-year high on Tuesday and silver hit its highest level in 23 years as a blistering rally in commodities lured more players into the sector, dealers said.
Record high oil prices and instability in the dollar encouraged market participants to add positions, with platinum jumping to its highest ever level and palladium rising to a level not seen in nearly four years.
"Everyone wants to be in gold. People are now talking about it going to $650 then up to $850, which I haven't heard in years, but it was the same in copper - people were asking us when it was $5,400, 'will it go to $7,000?' and I thought it never would, but now it's $6,500," said Christoph Eibl, executive director of Tiberius Asset Management, an active fund with $60 million under management. "These are irrational markets."
Stephen Briggs, economist at SG Corporate and Investment Banking, agreed that gold was in fashion: "Most people are buying because the price has gone up, not because they think the price will go up," he said.
Fears over the nuclear stand-off in Iran - President Mahmoud Ahmadinejad on Tuesday warned that any aggressor would regret attacking the Islamic Republic, which is embroiled in a nuclear dispute with the West - boosted the price of Brent crude oil and gold.
"Gold adores bad news," Briggs said. "The worse the news is, the better. If we are looking at a serious confrontation between the US and Iran, that's not good for the world economy but that's great for gold," he said.
Gold climbed to $620.30 an ounce late in New York and it last changed hands at $620.20/1.00, compared with $613.20/614.00 late on Monday.
In euro terms, gold surged to a record high of 504.43 euros, while it rose to 348.98 sterling, the highest in two decades.
Gold has outperformed many assets with its 46 percent gain in the past 12 months, including a jump of 20 percent in 2006. The metal's price has doubled in about three years.
In contrast, the Standard and Poor's 500 index, an indicator of US equity performance, rose about 13 percent in a year, while the Dow Jones industrial average gained 11 percent. The dollar against the euro was up by 5 percent.
"We recognise that prices are above what is justifiable on the basis of supply and demand fundamentals," said John Reade, precious metals analyst at UBS Investment Bank.
"But as the moves of the last nine months have demonstrated, fundamental factors do not seem to matter very much at the moment," he added.
Investors chased the metals as oil prices leapt, reigniting predictions of higher inflation that could weaken the buying clout of the US dollar.
Oil surged to a record high above $72 a barrel in London on concern that Iran's nuclear stand-off with the West could cut oil exports from the world's fourth-largest crude exporter.
Gold is often seen as a hedge against inflation.
A tumbling greenback overnight reinforced the argument to hold more gold, with non-US investors getting more metal for their currency, though the dollar later steadied.
"Rising fears over the situation in Iran with regards to its nuclear activities is also prompting investment in gold by funds and individuals," said John Meyer, analyst at Numis Securities.
Gold's rise added lustre to mining stocks, with Australia's top producer, Newcrest Mining Ltd closing up 2.7 percent and number-two Lihir Gold Ltd up 5 percent.
In other markets, copper and zinc prices spiked to record highs, supported by another round of fund buying.
Spot silver rose to a new 23-year high at $13.91/13.94 an ounce, against $13.41/44 previously.
It has gained almost 60 percent this year on hopes a proposed exchange-traded fund would boost demand.
The rally has been hitting consumers, with Eastman Kodak Co saying on Monday it planned to hike prices for its consumer and professional films in a range of 3 to 17 percent. "Industrial demand for silver has been lagging significantly since it went over $11," Eibl said.
Spot platinum hit $1,111 per ounce and was at $1,111/$1,116 in New York, up from $1,101/1,105. Palladium was at $361/365 per ounce, against $356/360.