Gold hit record highs above $1,270 an ounce on Tuesday in its biggest one-day rally in four months, as the U.S. dollar declined broadly after upbeat data failed to convince investors to shift into risk-linked assets.

Gold is now on course for a 15 percent gain in 2010, fueled largely by investor nervousness that stemmed from the fallout from the euro zone debt crisis and from economic data that has suggested global economic growth may be losing momentum.

Spot gold was at $1,267.70 an ounce by 1500 GMT, up from $1,245.25 the day before, having hit a record high of $1,271.20 earlier in the session. U.S. gold futures for December delivery were last up $22.4 an ounce at $1,269.40.

"It's continuing the trends that we've seen through this year really. Equity markets just remain very, very lacking in confidence, no one is prepared to put positions on and stick with them for any length of time," said Credit Suisse precious metals strategist Tom Kendall.

"There is a lot of volatility and reaction to data ... people are looking for that defensive asset."

Gold has long served investors as an alternative to volatile currencies, equities or sovereign bonds that investors will swiftly punish.

This year has seen an expansion in open interest in U.S. gold futures and hefty flows into exchange-traded products backed by physical bullion and even if the economic data improves, some analysts believe gold has room to rally.

"The funds are certainly doing some buying ... who else is it going to be? It's not producers buying it back, it's investors. And investors, whether rightly or wrongly, believe in this and that is the message," said ANZ head of sales Peter Hillyard.

"It's going up for all the same reasons. People are fearful still. Little things come into the market, little factors that awaken people's interest in gold," he said.

The euro rose against the dollar after breaking through a key area of resistance, while U.S. Treasury prices rallied, brushing off a report that showed sturdy consumer spending in August, but was not enough to shift investors' expectations for a slowdown and lower bond yields.

Gold is on track for a 15 percent rise this year, fueled primarily by investors seeking an alternative to volatile currencies, equities and some sovereign bonds as economic data has cast doubt on the global growth outlook.

"All four precious metals are really keeping a very close eye on the U.S. dollar right now and if the dollar doesn't 'shape up' as such, this safe-haven buying will continue in the precious metals," said Afshin Nabavi, head of trading at MKS Finance.

Although the gold price has held within a few dollars of record highs for a few weeks, the market is now in the full throes of the buying season in some of the world's biggest consumers, who seem undeterred by the price strength.

Across the rest of the precious metals complex, silver traded at its highest in 2-1/2 years, helped by robust Chinese industrial output and firm base metals, although the safe-haven effect boosting gold was also a driving force.

Spot silver was last at $20.43 an ounce, up from $20.02 the day before and on course for its third consecutive day of gains.

In the platinum group metals, platinum jumped to its highest level since early August, just below $1,590 an ounce, to be last quoted at $1,582.00, against $1,543.65 on Monday.

Palladium hit its highest in four months, trading above $550 an ounce.

Palladium, which is predominantly used in the production of auto catalysts, is on track for a 33 percent increase this year and is one of the top performers of the commodities complex.

Palladium was last at $548.00 up from $524.95 on Monday, set for its biggest daily rally since late May.

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