The gold price was set for its second largest daily gain this year on Monday after the respective pledges by the G7 and the European Central Bank to quell the turbulence in the financial markets did nothing to put investors at ease.
In Europe, Spanish and Italian bond yields fell. Traders said the ECB had made good on its promise to solve the euro zone debt crisis by widening its bond-buying program to include paper from those two nations.
Friday's downgrade to the quality of U.S. sovereign debt by ratings agency Standard & Poor's was widely anticipated, but its longer-term impact on anything from mortgage rates to the economy is unclear.
Investors have bought more gold in the last month than in the prior six months, looking at the increase in open interest on COMEX for speculators and money managers, as well as inflows into exchange-traded products.
Spot gold was set for a second consecutive trading rally, up 2.7 percent from Friday at $1,706.44 an ounce by 5 a.m. EDT, having hit a record $1,715.01 earlier and having traded at all-time highs in sterling and euros.
"Everyone was talking about Armageddon at the weekend and this morning, it's held the rot but doesn't remove the themes that have been driving the stock markets," said Saxo Bank senior manager Ole Hansen.
"The question right now is if gold will be allowed to move much further. There has been a huge build-up in speculative and long positions across the board over the last couple of weeks, but I suppose that central banks buying more bonds is not helping the overall worry about how the economies are going to do over the months ahead," he said.
According to data from the Commodity Futures Trading Commission, which collects information on holdings of futures and options, and to ETF data collected by Reuters, investors bought over 18 million ounces of gold, or 30 percent of total identifiable investment demand in 2010, in the last month alone, compared with about 8.4 million in the year to early July.
Finance chiefs from the world's industrial powers pledged on Sunday to take whatever actions were needed to steady financial markets, spooked by the political wrangling in Europe and the United States over slashing their huge budget deficits.
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