Gold edged up more than half a percent on Friday as investors used bullion to shelter from the storm engulfing financial markets on concerns that the United States may be facing another recession and Europe's debt crisis is spreading to some of its largest economies.
Gold fell as much as $40 an ounce from a record high on Thursday because investors needed to sell the precious metal to cover losses in other asset classes, but the decline in prices as well as tumbling equities spurred bargain hunting.
Spot gold rose 0.84 percent to $1,661.66 an ounce by 0617 GMT, having hit a low of around $1,641. Bullion struck a record around $1,681 an ounce on Thursday before losing much of the gains.
"I don't hear anybody saying that the bears are coming," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"The market has dropped down too much, so bargain hunters are buying a little bit at the lower end. There doesn't seem to be too much change in sentiment."
Japanese stocks tumbled on Friday to their lowest since the post-quake rout in March, as investors ran for the exits after the worsening financial crisis in Europe compounded a weak U.S. economy that has come close to stalling. .T
In the physical market, premiums for gold bars were steady at 50 cents to $1 to spot London prices in Hong Kong, while in Singapore, the value was little changed at around 80 cents.
"Investors are more interested in playing the spread now. They are buying gold at around $1,640s and selling it at around $1,650s. I do see physical demand from jewelers, although the amount is not big," said a dealer in Singapore.
"Premiums are still unchanged at 20 to 80 cents, depending on the brand."
In Tokyo, gold bars were at a discount of 50 cents to spot London prices as investors sold bullion to cover losses in other markets.
Bullion prices have risen more than 15 percent this year. The need for investors to book those profits and boost liquidity may force prices lower in the next few days.
"Bullish sentiment in gold could be tempered as wary short-term investors look to take profits," said Ong Yi Ling, an investment analyst at Phillip Futures.
"Investors will be watching the all-important non-farm payrolls data that we will be getting today and whether the figures turn up worse than expected. It seems everyone is bracing for the worst."
U.S. economic data suggests growth in the world's largest economy was slowing from what was already a sluggish pace even before politicians agreed budget cuts. Investors await data later on Friday on U.S. jobs growth for July, which may show the impact of the political stand-off on debt.
Europe's debt crisis is threatening to swallow two of the continent's largest economies, Italy and Spain. European policymakers tried to turn a more powerful fire hose on the euro zone debt crisis on Thursday but financial markets were unimpressed with their response.
With few other places to go the metal still looks attractive to investors trying to maintain the value of their capital.
Citing enhanced contagion risk from the European debt crisis, Morgan Stanley lifted its 2011 gold price forecast to $1,511 an ounce from $1,401 and raised this year's silver price forecast to $36.21 an ounce from $31.39.
U.S. gold futures also rebounded from lows and rose $6.4 an ounce to $1,665.4 an ounce -- still off Thursday's record around $1,684 an ounce.
Oil fell sharply on Friday, heading for its biggest weekly drop in three months, after fears of an economic slowdown drove investors to the exits in a commodities sell-off.
London copper futures extended losses on Friday, falling more than 2 percent to their lowest since late June as mounting worries over a stalling U.S. economy and a widening debt crisis in Europe pushed investors out of riskier assets.