Gold prices jumped two percent to hit their highest point in six weeks and regain, at least for now, its traditional role as a safe-haven investment.
Soaring yields on Italy's government bonds - they hit a Eurozone-era record 6.68 percent on the 10-year note - created huge pressure on Prime Minister Silvio Berlusconi to resign, a step he did not appear willing to take.
German leaders added to the gloom by saying their country's gold would not be used to increase the fire power of the continent's $1.4 trillion bailout fund.
European stocks fell and U.S. equities were mixed.
Rising expectations that the Federal Reserve would resume buying bonds in another attempt to energize the U.S. economy put a damper on the value of the dollar, which was fractionally higher despite a big drop in the euro.
Gold and silver both rose two percent, as one would expect in a market dominated by fears of a European recession whose effects might be felt on the other side of the Atlantic.
The folks who think that the U.S. economy or the financial markets are immune and will simply ride out the storm are dreaming in Technicolor, David Rosenberg, chief economist with Gluskin Sheff + Associates Inc., wrote in a client note.
Gold for December delivery climbed $35 to $1,791.10, while cash gold rose $3.70 to $1,786.48.
Silver for December delivery rose $7.44 to $334.83, while cash silver added nine cents to 34.79.