NEW YORK (Reuters) - Gold rose for a fourth straight session on Tuesday and was on track for its biggest one-day gain in nearly 4 months as Federal Reserve Chairman Ben Bernanke's defense of U.S. bond-buying stimulus boosted bullion's inflation-hedge appeal.
The metal climbed 1.3 percent and broke above $1,600 an ounce for the first time in a week, after Bernanke said Fed policymakers are cognizant of potential risks from loose monetary policy, but the risks did not seem material now.
Recent comments by top Fed officials suggesting the U.S. central bank could reduce or halt its asset buying had heavily pressured gold prices. Relatively solid performance of U.S. equities driven by economic optimism also prompted bullion selling.
"I think this rally today is more of a reflection of gold's sharp drop from near $1,700 in a very short period of time," said Rob Lutts, chief investment officer of Cabot Money Management which oversees about $500 million in client assets.
Money printing by global policymakers to weaken their currencies and a pick-up in bullion buying by central banks should underpin gold prices in the long term, Lutts said.
Spot gold gained 1.3 percent at $1,614.71 by 1:13 p.m. EST (1813 GMT), on track for its biggest one-day rise since November 23, 2012. It had earlier reached a one-week high of $1,619.66.
U.S. gold futures for April delivery were up $27.90 at $1,614.50, with trading volume about 40 percent above its 250-day average, preliminary Reuters data showed.
The metal's gain came a day after it rallied 1 percent as a sharp pullback in U.S. equities and uncertain euro zone over the outcome of Italy's parliamentary election led to resurgent safe-haven buying.
In his testimony on the central bank's semi-annual report on monetary policy, Bernanke said the Fed has all the tools it needs to retreat from its monetary support in a timely fashion.
"We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation," Bernanke told the Senate Banking Committee.
GOLDMAN CUTS GOLD FORECAST
The gold market largely ignored a more than $200 cut in a gold price outlook by Goldman Sachs (GS.N), one of the top global bullion banks.
It cut its 2013 gold price forecast to $1,600 an ounce from $1,810 an ounce, citing bullion's recent price drop and an increase in U.S. real interest rates.
If that projection proves accurate, it will mark the first year gold has recorded a lower average price year-on-year since 2001, when its record-breaking 12-year bull run began.
Investment interest in the metal stayed weak. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, reported its fourth successive daily outflow on Monday, of 7.8 tonnes.
That took its week-on-week decline to more than 50 tonnes.
Among other precious metals, silver rose 0.9 percent to $29.28 per ounce. Platinum was up 0.4 percent to $1,611.24, while palladium edged up 0.2 percent to $734.50 per ounce.
(Additional reporting by Jan Harvey and Clara Denina in London; Editing by Bob Burgdorfer)