Gold prices extended gains to scale a record high on Monday, driven by the momentum generated by the Federal Reserve's interest rate cut and safe-haven demand due to geopolitical risks in the Middle East.

Gold rose on Monday to an all-time high, as bullish market sentiment after the U.S. Federal Reserve cut interest rates last week combined with geopolitical tensions drove prices despite a stronger dollar.

Spot gold gained 0.4% to $2,631.09 per ounce, after hitting an all-time high of $2,634.16 earlier in the session.

"The market is still reacting to the Fed's 50 basis point cut last Wednesday... the U.S. central bank has signaled that it is not particularly worried about inflation and that it is going to do its best to make sure that unemployment isn't a problem in the U.S.," said Bart Melek, head of commodity strategies at TD Securities.

However, the Fed is not in a "mad dash" to a neutral rate of interest as policymakers engage in a "robust" debate about how far and fast rates may need to fall, Atlanta Federal Reserve president Raphael Bostic said.

If employment rates plummet, that would get the market to believe that the Fed might get a lot more aggressive on the cutting side which is very helpful for gold, said Melek, adding that a situation of regional instability in the Middle East could also further fuel gold's rally.

• Read More