Gold rose to a 1-1/2 week high on Friday as investors sought refuge in safe haven assets after a disappointing labour market report from the United States added to mounting fears about the pace of recovery in the world's largest economy.

Non-farm payrolls were unchanged in August, the U.S. Labor Department said, the weakest reading since September. Economists had expected the economy to create at least 75,000 jobs.

Investors clung on to the precious metal as assets perceived as higher risk sold off in the wake of the disappointing report, with European stocks falling sharply while U.S. Treasuries rallied.

At 1403 GMT, spot gold rose 2.7 percent to $1,873.79 an ounce from $1,824.55 late in New York on Thursday. It earlier rose to a high of $1,879.30, its highest level since hitting a record on August 23.

Analysts said the gains were tempered by some caution about how much further gold's rally could go following the precious metal's strong gains in recent weeks, and a lack of large position-taking among investors ahead of a long weekend in the United States.

The initial reaction on the gold price was that it traded a bit higher after the weaker-than-expected non-farm payrolls data, said Georgette Boele, head of forex and commodities research at ABN Amro.

But it didn't get the kind of boost that we have seen in recent weeks because market players are still a bit cautious after the volatility seen recently in gold prices.

The metal rose 12 percent in August, its strongest monthly gain since Nov. 2009 and has hit record highs several times in recent weeks following a run of soft economic data from the United States.

Analysts said the weak reading in the country's labour market strengthens expectations that the U.S. Federal Reserve will announce further measures to prop up the flagging economy.

Today's figures are very poor and will intensify pressure for strong policy action - possibly further QE (quantitative easing), Ross Norman of Sharps Pixley said in a note.

U.S. gold GCcv1 rose 2.6 percent to $1,876.40 an ounce.


Growing worries about Greece's ability to meet its deficit targets also helped underpin gold prices.

In the latest twist in Greece's debt saga, talks between Athens and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, after disagreements over why and by how much its deficit cuts programme has fallen behind schedule.

We're seeing a new round of flight into so-called safe haven assets. The debt problems in the euro zone are still a worry and it offers an opportunity for market speculators to buy gold, said Peter Fertig, a consultant at Quantitative Commodity Research.

Gold has risen 2.1 percent so far this week, reversing a sharp correction in the previous week. Some analysts expect a degree of short-term correction in the precious metal after its strong run in early August.

Some consolidation here is healthy for gold as we simply need more clarity on the macro side to determine if riskier bets are on or off this autumn, VTB Capital said in a note.

Otherwise, in the longer run bullion is still well supported as investors are afraid to liquidate their longs amid ongoing policy uncertainty in both the U.S. and the eurozone.

Spot silver tracked gold to rise 3 percent to $42.69 an ounce, following a 3.2 percent fall in the previous week.

Bolivia, the world's sixth-largest silver producing country by output in 2010, plans to raise mining royalties to take advantage of high prices and bolster the state's role in the industry.

Elsewhere, spot platinum rose 1.4 percent to $1,869.24 an ounce, while spot palladium slipped 0.5 percent to $775.50 an ounce.