Gold hit a 16-month high above $700 per ounce on Friday, boosted by a falling dollar after U.S. data showing a surprise contraction in U.S. non-farm payrolls for the first time in four years.
The dollar touched a 15-year low against major currencies after the August report showing a fall of 4,000 jobs, making dollar-denominated gold cheaper for overseas investors.
The data looked certain to increase pressure on the Federal Reserve to cut U.S. interest rates. A rate cut could weaken the currency further, as investors tend to exit the currency market and invest in other assets for better returns.
Gold's resilience in the face of the recent selling impressed a lot of investors and when the dollar started to weaken, people started to believe that gold had a realistic chance of moving substantially higher, said Peter Hillyard, head of metals sales at ANZ Investment Bank.
The market is bullish. Over the coming weeks and months, we will see an attempt to take the market higher towards the $730-$740 area, he said.
Spot gold traded as high $707.10 an ounce before easing to $701.70/702.20 by 1429 GMT, against New York's late quote of $695.70/696.30 on Thursday and a 26-year high of $730 hit in 2006.
Bullion was also supported by strong oil prices, healthy physical demand and safe-haven buying against a backdrop of worries over problems on credit markets.
It has rebounded more than 10 percent since falling to a seven-week low of $641.10 in mid-August, when investors sold gold and other metals for cash to cover margin calls on losses arising from a meltdown in the U.S. subprime mortgage market.
The latest rise is entirely related to the surprise drop in U.S. jobs data. I think the fixed income market has dramatically increased the chances of a 50-basis-point interest rate cut, said James Steel, HSBC metals analyst in New York.
Consequently, liquidity is surging through the gold market -- there's all round buying, he added.
Simon Weeks, head of precious metal trading at Bank Nova Scotia, said gold was also starting to break out technically in other currencies.
Gold priced in euros rose to its highest since early March, which analysts consider to be a bullish sign.
Bullion is also generally seen as a hedge against oil-led inflation and benefited on Friday from crude prices rising towards a record peak.
Oil held above $76, within $3 of its all-time high, as tension in the Middle East compounded supply worries after further declines in U.S. fuel inventories.
Data also showed that gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, reached record high of 542.35 tonnes, up 26.91 tonnes or 5 percent from the start of the month.
In other metals, platinum rose to a one-month high of $1,294.50 an ounce and was last quoted at $1,286.50/1,293.50, against $1,284.50/1,291.50 in the U.S. market.
Palladium was broadly steady at $333/337 an ounce, while silver rose as high as $12.67, the highest since August 15, before easing to $12.38/12.43, versus $12.42/12.46 in New York.
(Additional reporting by Clare Black in London)