Gold firmed on Monday, holding near an almost seven-month high, as the U.S. Federal Reserve's latest stimulus move to spur the economy led to a rush for bullion -- a traditional hedge against inflation.
Gold, which has risen for the last four weeks, could breach this year's peak around $1,790 an ounce as the United States prints more money to buy assets, driving up the outlook for inflation and weighing on the dollar.
Gold added $4.03 an ounce to $1,773.49 by 0621 GMT after rising as high as $1,777.51 on Friday, its highest since late February when it hit this year's peak. Gold rallied to a record around $1,920 in September last year.
"Gold is still pretty bullish this week. I think gold prices will remain firm and probably test the high set in February," Lynette Tan, an analyst at Phillip Futures in Singapore.
"Buyers are still buying gold, but it seems that profit taking may occur later."
Reuters poll showed the Fed will buy a total of $600 billion of bonds under its new stimulus program, known as quantitative easing or QE3, and will look for a U.S. unemployment rate of 7 percent before it halts the programme.
"We believe the macroeconomic environment for gold is turning more constructive. While flow into physically backed gold ETF stalled earlier this year, the purchase of gold by central banks accelerated," Deutsche Bank said in a report.
"We expect that the growth in supply of fiat currencies are an important driver, the low interest rate environment is likely to continue to enhance gold's attractiveness given the negligible opportunity cost."
Fiat currencies are government-issued and their value is based on the issuer's guarantee to pay the face amount on demand.
U.S. gold for December rose $3.20 to $1,775.90 an ounce as the dollar languished near a seven-month trough versus a basket of major currencies.
The dollar index stood at 78.802, having fallen as far as 78.601 on Friday, a level unseen since late February. It has shed some 6 percent from a two-year high of 84.100 in July. A softer dollar makes commodities priced in the greenback cheaper for holders of other currencies.
Silver tracked gold higher and held near its strongest since March. Platinum was near multi-month highs even after Anglo American Platinum said it will resume work this week at its strike-hit Rustenburg operations.
Higher prices spurred selling in the physical sector, but bullion was likely to find support at around $1,750 an ounce, dealers said.
"We've seen some selling, but it's not heavy. We saw early selling from the Middle East this morning, but Thailand and Indonesia are a bit quiet," said a dealer in Singapore.
"Premiums are still at 20 to 40 cents. You can't go cheaper than this because the premiums are already low. But we expect more selling this week. Thailand may be selling more gold scraps."
In main consumer India, demand picked up last week as jewellers and investors scaled up purchases before prices rose further during the festive season, which peaks in November with Diwali, the Hindu festival of lights.
In other markets, MSCI's broadest index of Asia Pacific shares outside Japan crept up 0.3 percent, having reached its highest level since early May earlier in the session, while Brent crude rose for the eighth consecutive session to just below $117 a barrel.
