Gold rallied even as the US dollar strengthened, helping the precious metal hit record highs versus the euro and sterling. The precious metal has been on a solid footing since Europe started struggling to put together a second bailout for Greece and contain the euro zone debt crisis.

Bullion has gained 8 percent in 11 days as President Barack Obama and Congress have failed to reach an agreement to raise the US$14.3 trillion US borrowing limit with less than three weeks before the August 2 deadline.

Technical charts indicate gold should rise above US$1,700 an ounce in the next few months.

"What's coming out of these debt talks is that you are seeing a lot of people focusing on the numbers and to understand the ramifications of debt burden on countries," said Robert Lutts, chief investment officer of Cabot Money Management, which manages more than US$500 million in assets.

"A move to US$2,000 in the next six to nine months is not that crazy in gold," Lutts said.

Spot gold rose as high as US$1,607.01 an ounce and was up 0.7 percent at US$1,603.89 an ounce by 2:20 p.m. EDT (1820 GMT). It has now set record highs in three out of the last four sessions. It rallied 10 straight days in 1970.

US gold futures for August delivery settled up US$12.30 at US$1,602.40 an ounce after trading between US$1,591.40 and US$1,607.90. Volume came to 130,000 lots, sharply lower than turnover during last week's rallies to then-record highs.

While gold has increased over six fold from just US$250 in 2001, the metal remains one of the few commodities which has not surpassed its inflation-adjusted records -- with bullion's adjusted all-time high at above US$2,300 set in 1980.

The relative strength index for gold rose above 70, often seen as a sign of overextension. Some said that gold's extreme valuation is hindering its ability to rise further and perform as a safe haven.

"If there is a plan put in place for the reduction of the US deficit, gold's going to get knocked hard on that," said Jason Pride, director of investment strategy at Glenmede, a wealth management firm with US$20 billion in assets.

Silver soared nearly 4 percent, topping US$40 an ounce for the first time since early May. Silver hit a two-month high of US$40.70 and ended up 2.5 percent at US$40.27. Silver has rallied more than 15 percent in the last two weeks.