Gold for December delivery rose $13.90, or 2%, to close at $704.60 an ounce on the New York Mercantile Exchange. It touched an intraday high of $707. The contract hasn't seen levels this high since early May.

"A teetering U.S. dollar, the ability to absorb all the gold thrown at it by shorts trying to cap the market and the fact we're now entering its strongest seasonally favorable period, have all combined to set us up for a near perfect storm that should take us over the psychological $700 barrier," said Peter Grandich, editor of the Grandich Letter, in emailed comments.

The dollar was stronger against the yen, but weakened against European currencies after the European Central Bank decided to hold its key interest rate steady at 4%. See Currencies. The Dollar Index, which tracks the greenback against a basket of the world's major currencies, edged down 0.2% at 80.49.

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