Why gold prices are at all-time highs? Is further rise likely ahead of Diwali?

Gold prices surged to record highs on Monday, driven by a softer dollar and expectations of a larger interest rate reduction by the US Federal Reserve this week.

Spot gold was up 0.5% at $2,588.29 per ounce, as of 0551 GMT, after hitting an all-time high of $2,589.23 earlier in the session.

Read more: Bajaj Housing Finance lists with a bang: Should investors hold it long term or book profits?

US gold futures edged 0.2% higher to $2,615.80.

Holidays in China, Japan, Indonesia, Malaysia and South Korea made for thin trading conditions.

The dollar weakened 0.2%, making gold less expensive for other currency holders.

"The prospect of the Fed potentially wielding the axe by delivering a 50 basis point cut this week has sent gold and the dollar in opposite directions," said Tim Waterer, chief market analyst, KCM Trade.

"Overall conditions for gold remain favourable, with further gains likely. If the dollar continues its downward trend, gold could reach $2,700 by year-end."

Read more: 104 Samsung workers detained for planning protest in Chennai: ‘Paralyzing peace’

All eyes will be on the Fed this week as speculation mounts over the extent of the rate cut at its Sept. 17-18 monetary policy meeting and the pace of future reductions. The Bank of England and the Bank of Japan are also announcing policy decisions later this week.

Markets are currently pricing in an 59% probability of a 50-bps cut on Wednesday, according to the CME FedWatch tool. This would be Fed's first rate cut since 2020.

Data on Friday showed that US consumer sentiment improved in September amid subsiding inflation, though Americans remained cautious ahead of the November presidential elections.

Zero-yield bullion tends to be a preferred investment amid lower interest rates and geopolitical turmoil.

Republican presidential candidate Donald Trump was the subject of a second assassination attempt on Sunday, according to the FBI.

Spot silver gained 1.2% to $31.02 per ounce, marking its highest level in two months.

Platinum climbed 0.4% to $999.38 and palladium was up 0.7% at $1,075.60.