Gold surged to a record near $1,590 an ounce on Wednesday as the possibility of more Federal Reserve stimulus coupled with Europe's deepening debt crisis fuelled bullion's longest winning streak in five years. Bullion's gains accelerated after Federal Reserve Chairman Ben Bernanke said the central bank is ready to ease monetary policy further if the economy weakens and inflation moves lower.
Silver rallied nearly 6 percent, moving in tandem with commodities, US stock markets and risk assets. Bernanke's comment served as a hint that policymakers were actively mulling a third round of stimulus, a strong boost for gold. Fears that the eurozone crisis is spreading to Italy, the region's third-largest economy, and uncertainty over frantic talks to raise the US debt limit underpinned precious metals. Gold also hit all-time highs when priced in euro and sterling.
"We have fear and contagion risks in Europe, and we are getting a rally of risk assets on the back of Bernanke alluding to the Fed trying to stimulate the economy, what people refer to as QE3," said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital, with more than $12 billion in assets. Spot gold rose 1.2 percent to $1,584.39 an ounce as of 12:59 pm EDT (1659 GMT). US August futures gained $22.80 to $1,585.10 an ounce.
Options saw heavy call buying, suggesting market players expect underlying gold futures to rise further. Spot silver was last up 5.3 percent at $37.98 an ounce, set for its largest one-day gain in over two months. While holding to a view that recent economic softness would eventually pass, Bernanke appeared less confident in that projection - and more willing to entertain the possibility of another round of stimulus. Gold would benefit from additional US monetary easing because such a move should weaken the dollar and stir inflation down the road. A worsening sovereign debt crisis in Europe could also prompt policymakers to mull further stimulus, which would increase bullion's safe-haven appeal.
Gold is set for an eighth consecutive day of gains, something it has not achieved since mid-October 2006, when it rose for nine days in a row. It has risen around 12 percent so far this year, versus the S&P stock gauge's 5.5 percent gain, and a loss of 5 percent for the dollar index. The metal has also more than doubled in price in the last four years.
Gold options volatility is soaring amid gold futures' rally this week. The CBOE gold volatility index, a fear gauge for the gold market, spiked 11 percent to 19 on Wednesday, its third day of sharp gains.