Gold rose for an eighth day on Wednesday, set for its longest stretch of gains in nearly five years, and struck a record high close to $1,580 after European leaders mulled the option of a Greek default and Ireland's credit rating was cut to junk.

European Union leaders are expected to hold an emergency meeting on Friday after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and stop contagion spreading to Italy and Spain.

The metal was also lifted by minutes to the Federal Reserve's June meeting on Tuesday which suggested that some members were pondering the possible need for additional easing amid a weak economy.

The euro held around four-month lows against the dollar, although risk-averse investors took a breather in their recent battering of the stocks and bonds from more indebted euro zone nations such as Italy, Portugal and Spain.

Surprisingly strong Chinese growth data supported industrial commodities and broader equity markets, keeping the dollar under pressure and giving gold, which usually moves inversely to the US currency, an additional boost.

The price of gold reached $1,578.73 an ounce at 1130 GMT on the London Bullion Market, beating the previous record of $1,577.57 set on May 1.

Gold, having risen in the last seven sessions, set for an eighth day of gains and a gain of 5.9 per cent, something it has not achieved since mid-October 2006, when it rose for nine days in a row.

Comex August gold futures were last up 0.75 per cent at $1,574.10 an ounce..

'It's a pretty well-trodden safe-haven story. While the issue has been bubbling away, it hadn't been acute enough to drive people into the strongest safe-haven. That situation has clearly changed in the last couple of days,' said RBS analyst Daniel Major.

'In the last few days, risk-aversion has been strong enough to offset the strength in the dollar, but it will really depend on how the macro events pan out as to whether gold can be carried higher or not,' he said.

Gold hits record in sterling, rand

The precious metal rallied in most currencies, with sterling- and South African rand-denominated gold prices reaching record highs and euro-priced gold holdings near Tuesday's all-time high.

Reflecting the heightened investor demand for metal, global holdings of gold in exchange-traded products witnessed their largest daily inflow since early April, driven by a hefty rise in holdings of metal in the SPDR Gold Trust , the world's largest gold-backed ETF.

Adding to worries about the euro zone debt crisis, Moody's cut Ireland's sovereign rating to junk status and warned of the likelihood of Dublin needing a second bailout, a week after it cut Portugal to junk and issuing a similar caution.

'With European sovereign debt fears intensifying again, little clarity on what Eurozone officials intend to do next and cross-asset market confidence taking a bashing, gold has been a beneficiary, much like the Swiss franc. And in this nervous environment, we prefer assets that have limited downside exposure - i.e. gold over other precious metals and commodities,' said UBS strategist Edel Tully.

Also on Wednesday, US Federal Reserve Chairman Ben Bernanke delivers his semi-annual testimony on economic and monetary policy to Congress and will likely be asked why the central bank's $600-billion quantitative easing programme was not more effective at bringing down unemployment and boosting growth.

The Fed's QE programme was one of the key drivers for the gold price over the last year as it kept US interest rates and the dollar low, giving bullion, which bears no yield of its own, more of an edge in the competition for investor cash. 

Spot silver was last up 1.8 per cent on the day at $36.69 an ounce, bringing the gold/silver ratio -- the number of ounces of silver needed to buy one ounce of gold -- to 43.06 from 43.46 on Tuesday.

Palladium, which depends largely on the Chinese car market as a source of demand for the metal in gasoline-powered vehicles, rose 1.2 per cent to $770.97 an ounce.

Platinum echoed the strength in other industrial precious metals and rose 0.8 per cent to $1,742.99. – Reuters