Gold prices rose more than 1 percent on Tuesday, gathering steam above $1,610 per ounce, with broad sentiment lifted as increasingly poor economic data raised expectations that leading central banks will ease policy further to stimulate growth.
The rally in bullion was replicated in wider markets and world share prices climbed.
Spot gold rose 1.3 percent on the day to $1,617.09 per ounce by 1323 GMT, while benchmark U.S. gold futures for August delivery were up $20.20 an ounce at $1,617.90.
Bullion extended Friday's gains on a technical breach of $1,600, VTB Capital analyst Andrey Kryuchenkov said. Just as before, gold continues to track the broader market, with sentiment still upbeat in the wake of the euro zone summit in Brussels at the end of last week.
Peripheral bond yields in the euro zone remain subdued from last week's highs, while many are expecting a rate cut by the ECB (of 25 basis points) on Thursday.
The European Central Bank (ECB) could be leading on the monetary front, with wide expectations for rates to hit a record low later this week.
A run of poor data has also boosted the case for U.S. policy stimulus further out, analysts said.
U.S. manufacturing shrank in June for the first time in nearly three years, following a string of data from Europe and Asia that suggested the euro zone debt crisis was reverberating throughout the global economy.
Hopes for more monetary stimulus, including a third round of U.S. quantitative easing (QE3), boosted European shares, which were up 0.6 percent in early afternoon trade, while industrial commodities like oil and copper also rallied.
Gold typically gets support in a low interest rate environment as that cuts the opportunity cost of holding metal, with holders relying on rises in its outright value for returns.
Over the last few weeks U.S. numbers have worsened a lot and this has brought about the probability of QE3 - which is probably the most important reason for the market to believe in gold, Commerzbank analyst Eugen Weinberg sa i d.
The all-important U.S. non-farm payrolls data due on Friday, expected to shed light on the state of the labour market in the world's top economy, will be scrutinised by investors eager to predict the next move by the Fed.
Economists polled by Reuters last month cut their forecasts for jobs growth throughout 2012 and for all of next year. The median forecast for monthly jobs growth in the April-June period fell to 97,000 from 155,000 in the last survey.
PHYSICAL MARKET QUIET AGAIN
Asia's physical gold market fell back after short-lived excitement late last week when bullion dropped below $1,550 per ounce, before staging a 3 percent rally in a single day.
The rupee's recovery against the dollar last Friday helped gold purchases from India, traditionally the world's top bullion consumer, but they have since eased off.
Things will be dull until August, said Haresh Acharya, head of the gold desk at Parker Bullion in Ahmedabad.
In other metals, spot silver rose 2.2 percent to $28.08, mimicking gains in gold. Prices remain near their 2012 lows, however, and are little changed so far this year.
In a note, Saxo Bank flagged up silver's September 2011 low, which according to Reuters data is at $26.04 an ounce, as a potentially key level for the metal.
A break below... could signal a possible extension, as sell orders would flood the market and possibly take it one to two dollars lower, it said. A rejection should give it enough confidence to retrace back towards resistance at $32.
With the risk however being skewed to the downside, traders have been positioning themselves through the use of options with out-of-the-money put volatility rising strongly over the last week, it added.
Platinum rose 1.6 percent to $1,471.75 while palladium was also up 3.2 percent at $590.25.