Gold vaulted 1.4 percent in the first two hours of trading Friday amid mounting concerns the U.S. economy is heading into another recession and as some European lenders faced a short-term funding crunch, highlighting the risk of a banking crisis.

Nervous investors fled to the safety of core government bonds, Swiss francs and gold, which hit a record high, with many seeking to unwind holdings of riskier assets such as stocks, commodities and higher-yielding currencies before the weekend.

European shares extended steep losses from Thursday, when they suffered their biggest daily slide in 2-1/2 years, with key indexes in Britain, France and Germany all deep in the red.

The heavy selling is on the back of fears over the state of global economic growth and the ability of European banks to withstand another freezing-over of credit markets, said Ben Potter, strategist at IG Markets.

The sharp decline in stock markets is expected to have an adverse impact on household wealth, further undermining consumer confidence and demand in coming months. Heightened uncertainty over growth could also see producers delaying decision-making, hitting global output.

These concerns are likely to see investors cut exposure to stocks, commodities like metals and oil and growth-linked currencies such as the Australian dollar in the coming days.

Gold for December delivery on the CME Comex jumped $33.60 to $1,855.60, up from Thursday's closing price of $1,822. At one point in Friday trading it reached $1,881.40, a nominal record. The inflation-adjusted record occurred in 1980 when it hit the equivalent of about $2,400.