Gold rose towards six-month highs on Tuesday, helped by the weakness in the dollar after a warning from a ratings agency on US creditworthiness and after holdings of the metal in exchange-traded products reached a record high.
The euro's rise towards four-month highs against the dollar has been fuelled in part by growing expectations the US Federal Reserve will employ fresh measures to stimulate the economy, which in turn has encouraged investor demand for gold, which tends to profit from weakness in the US currency.
Gold relies more heavily on shifts in the dollar and US monetary policy for direction and the focus for the market is squarely on the Fed's next policy meeting that ends on Thursday. Spot gold was up 0.7 percent at $1,736.91 an ounce by 1415 GMT. The price has risen by 2.5 percent so far in September to trade at its highest in six months.
"The overwhelming consensus is in favour of more (quantitative easing) in a significant way. Let's assume that happens. Gold is going to go higher and $1,800 looks very likely in the short term, but partly because the inflation risks are higher than they were," Daniel Smith, an analyst at Standard Chartered, said.
The Reuters-Jefferies CRB index of 19 commodities has gained more than 2 percent to reach its highest level since late March. The rise in the gold price over this period has been driven largely by investors, rather than central banks or retail consumers.
Holdings of bullion in exchange-traded products, often used as a gauge of investor appetite for gold, rose by 91,932 ounces on the day to a record 72.49 million ounces, following broad-based inflows into most major ETPs. Total holdings have risen by nearly 3.5 million ounces so far in 2012, of which 2.7 million ounces have flowed into ETPs in the last month alone, according to Reuters data, reflecting raised expectations of easier US monetary policy.
"With a good portion of gold's recent strength accounted for by the sharp increase in spec positioning, this certainly raises concerns on the longevity of the move, especially with fundamental buying virtually out of the picture," Edel Tully, a strategist at UBS, said.
Silver has been one of the top-performing commodities in September, with a rise of 6.5 percent so far this month, compared with leader palladium, which has gained 8 percent and with corn, which has lost 2.5 percent. The gold/silver ratio, which measures the number of ounces of silver needed to buy one ounce of gold, has fallen to a five-month low of 51.4, from around 55 at the start of September, highlighting silver's outperformance.
Silver was up 1.4 percent on the day at $33.76 an ounce. Platinum extended gains, rising by 1.1 percent to $1,606.99, after world number two producer Impala Platinum said workers had demanded a second pay rise this year, the latest sign of labour unrest in the South African mining sector.
Platinum has risen by 15 percent in the last month, after a strike at world number three producer Lonmin turned violent, leaving 44 dead and dozens injured, and shuttering the company's South African operations. Palladium was up 1.9 percent at $675.22 an ounce.