Gold jumped to a near three-week high on Thursday as the dollar tumbled after the U.S. Federal Reserve signalled it would continue to pursue monetary stimulus, given tame inflation and a fragile labour market.
Fed Chairman Ben Bernanke said on Wednesday that highly accommodative policy was needed for the foreseeable future, surprising investors after his comments on June 19 that the economy was expanding strongly enough for the Fed to end the stimulus measures by mid-2014.
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"Of the Bernanke Twins, we got the dovish one last night, and this helped a gold market that was already rallying," Macquarie analyst Matthew Turner said.
"But whether tapering is September or December, gold has to get used to life without QE (quantitative easing) sooner or later."
The tapering would support a rise in interest rates and bolster the dollar, making gold less attractive.
Spot gold climbed as much as 2.7 percent to $1,298.36, its highest since June 24. It was up 1.5 percent to $1,282.31 an ounce by 0938 GMT.
Comex gold jumped as much as 4 percent to a two- and-a-half week high of $1,297.20 an ounce and was then trading at $1,280.90, still up $33.70.
This strength marks bullion's fourth day of gains in its longest winning streak since mid-April. Weekly gains of around 5 percent were also boosted by good physical demand from China.
Gold is still down 23 percent this year after taking a beating following Bernanke's comments in May and June that the Fed could begin scaling down its bond purchases later this year.
But comments from the central banker at a conference on Wednesday suggested that stimulus could last longer, pressuring the dollar and making commodities priced in the greenback cheaper for holders of other currencies.
Copper jumped about 3 percent to near one-month highs, while U.S. crude hit multi-month highs. The dollar dropped more than 1 percent after Fed's monetary policymakers released the results of their June meeting minutes on Wednesday.
"Commodities will likely push higher going into next week, as the pendulum has clearly swung from a scenario where most participants were expecting the Fed to start paring back stimulus in September to one where there is growing uncertainty that this indeed will happen anytime soon," INTL FCStone analyst Ed Meir said in a note.
BREAK THROUGH $1,300
Traders said prices could target a break through technical resistance at $1,300 ahead of the U.S. weekly jobless claims, scheduled for 1230 GMT.
"I suspect a test of $1,300 will be on the cards, considering order books are very light up to that point ... I am looking to fade a rally into $1,300-$1,310, with a stop in at $1,315 and a take profit at $1,285," MKS Capital senior trader Alex Thorndike said.
Caution prevailed, however, as investor sentiment remained guarded. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.1 percent to 30.192 million ounces on Wednesday, hitting fresh lows since February 2009.
Gold's strength also pushed silver to a three-week high of $20.26 an ounce. Platinum and palladium also jumped to three-week highs of $1,409.50 an ounce and $728.50 an ounce, respectively. (Additional reporting by A. Ananthalakshmi in Singapore; editing by Jane Baird)