Gold jumped on Friday as investors took refuge from equity and debt markets on mounting concerns about the threat of contagion from the euro zone crisis and as worries about a slowdown in U.S. growth fuelled a pullback in risky assets.
Spot gold hit a session high of $1,669.60 a troy ounce. It was bid at $1,666.70 an ounce at 1109 GMT from $1,647.90 an ounce late in New York on Thursday, up 1.1 percent.
The precious metal hit record highs of $1,681.67 on Thursday and then fell after investors sold to cover losses in other asset classes. Silver followed, rising 1.2 percent to $39.28 from $38.81 on Thursday.
Autocatalyst metals platinum and palladium both hit two-month lows on Friday as a deteriorating economic picture and expectations of lower vehicle sales prompted investors to sell their holdings.
Gold appeared to be the asset class of choice for investors as European equities plunged to 14-month lows, while the dollar fell against a basket of currencies on fears the United States could be heading into a recession following disappointing economic data in recent weeks.
Investors nerves were also rattled by growing unease over the euro zone debt crisis, which is threatening to spill over to larger economies such as Spain and Italy, sending bond yields of the two countries soaring.
With few other places to go, the metal still looks attractive to investors trying to maintain the value of their capital.
"There is a perfect storm for gold prices given the uncertainty about the debt crisis in Europe and the U.S., with equities falling and the dollar easing," said Arne Lohmann Rasmussen, an analyst with Danske Bank.
"It's one of the few safe havens left in the financial world at the moment," Rasmussen said.
Gold has risen more than 17 percent this year as loose monetary policy in the United States in recent years has weighed on the dollar. Investors also use the metal as a hedge against inflation.
U.S. gold futures rose $10 to $1,669 an ounce.
Citing enhanced contagion risk from the European debt crisis, Morgan Stanley lifted its 2011 gold price forecast to $1,511 an ounce from $1,401 and raised this year's silver price forecast to $36.21 an ounce from $31.39.
"Given current market anxieties regarding debt and growth, silver prices are likely to revisit their recent highs as all of the drivers for the September 2010 to April 2011 price surge remain intact," Morgan Stanley said.
Investors awaited U.S. non farm payrolls data, due at 1230 GMT, to gauge the recovery in the country's labour market following disappointing manufacturing, consumer spending and growth data from recent weeks.
A weak reading could prompt further gains for gold, because it would raise the prospects of further quantitative easing in the United States, which could support investor demand for safe-haven assets.
"If we are going to see a big move (in gold), it will be today. The numbers will be closely scrutinised," said Ross Norman of Sharps Pixley.
"We could see a big leg higher and I wouldn't be surprised if it heads towards $1,700 and possibly through it."
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust , was unchanged on Thursday from Wednesday, while holdings of COMEX Gold Trust rose 1.9 percent.
Platinum extended losses from the previous session when it fell following news that Impala Platinum had improved its wage offer to avert a strike.
It fell to $1,708.49 from $1,717.80 on Thursday.
"The PGMs (platinum group metals) continue to succumb to selling pressure ... amid concern of slowing economic activity and the threat slowing economic activity will reduce auto-catalyst and jewellery related demand," James Moore, an analyst at thebulliondesk.com wrote in a note.
Palladium slipped to $733.95 from $741.18 on Thursday.