By Polya Lesova & Moming Zhou, MarketWatch
NEW YORK (MarketWatch) -- Gold futures rallied Monday for a seventh day, with the December contract hitting a new high above $1,170 an ounce, as dollar weakness and escalating tensions between Iran and the west boosted gold's appeal as a safe haven and a hedge against inflation.
Gold futures have already seen a seven-day winning streak ended on Nov. 11. The metal has only recorded one losing session this month.
"It is an unbelievable rally," said Darin Newsom, a senior analyst at Telvent DTN, adding that buying is coming from inflation hedge and safe-haven buying due to continued global economic concerns.
In Monday's trading, gold for December delivery, the most actively traded contract, climbed as high as $1,171 an ounce. It was last up $22.60, or 2%, to $1,169.30 an ounce.
The thinly traded November contract rose as high as $1,161.60.
Pushing gold higher, the dollar declined against its rivals after Federal Reserve Bank of St. Louis President James Bullard said Sunday that the U.S. central bank should continue buying mortgage-backed securities and other assets longer than currently planned. Read more.
GLD 114.88, +1.94, +1.72%
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The dollar index (DXY 75.01, -0.61, -0.81%) , which tracks the performance of the greenback against a basket of other major currencies, fell 0.8% to 75.061 in recent trading.
Bullard's comments are "the main reason why the dollar is under pressure this morning," and that in turn is boosting gold prices, said Carsten Fritsch, commodities analyst at Commerzbank AG.
"It's an indication that a Fed rate hike may come later than expected," Fritsch said. "And also rising money supply undermines the dollar."
Gold and the dollar have a strong inverse relationship: When the dollar falls, gold prices tend to rise.
Holdings in SPDR Gold Shares (GLD 114.88, +1.94, +1.72%) , the biggest gold exchange-traded fund, stood at 1,117.49 metric tons as of Friday.
Iran tensions escalate
Rising tensions between Iran and the west are also buoying gold's status as a safe-haven asset, according to Fritsch.
Iran started on Sunday five days of large-scale war games aimed at defending its nuclear sites in case of attack, the BBC reported on its Web site.
An Iranian official said that if his country is attacked by Israel, it will respond by launching a missile strike against Tel Aviv, according to the report.
Western nations have put strong pressure on Iran to give up its nuclear program, but Iran has insisted the program is for peaceful purposes.
"Traders will continue to keep a close eye on the dollar and risk appetite as a whole; however, there is nothing to rule out a push towards $1,200 if further investment and buy-stops are triggered," said James Moore, analyst at TheBullionDesk.com.
Gold futures have made significant gains in the second half of this year. Benchmark gold futures contracts have soared nearly 30% since their July low. Gold has risen in 16 out of the 19 weeks since the week started July 17. Read special report on gold's appeal.
Newsom said he has an initial target for gold prices just short of $1,390. He expects gold prices to reach his target price in the first quarter of 2010.
"But given the momentum the market is seeing now, it could be by the end of December," he said.
Other metals futures also posted strong gains on Monday. Silver for December delivery rose 34 cents, or 1.8%, to $18.78 an ounce.
Platinum for January delivery gained $35.80, or 2.5%, to $1,477.70 an ounce. December palladium added $6.65, or 1.8%, to $371 an ounce.
Platinum and palladium will look to the other precious metals and broader risk sentiment for direction, Moore said.
"With continued investment demand and positive fundamentals, both metals are likely to test higher in the coming sessions," he said.
