REUTERS

A woman is reflected on a mirror inside a gold jewellery shop in the western Indian city of Ahmedabad November 29, 2010.

Gold was propelled higher 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 US recession fuelled a pullback in risky assets.

Spot gold hit a session high of $1,669.60 a troy ounce. It was bid at $1,666.59 an ounce at 12:03 SA time from $1,647.90 an ounce late in New York on Thursday.

The precious metal hit record highs of $1,681.67 on Thursday, and later fell after investors sold to cover losses in other asset classes. Silver followed, rising 2.3 percent to $39.67 from $38.81 on Thursday.

Gold appeared to be the asset class of choice for investors as equity markets in Europe 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.

“There is a sense that economic growth is stagnating. The recent market data from Europe, the United States and Asia all suggest a slowdown so the bias to gold is on the upside,” 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.”

Investors nerves were also rattled by growing unease over the euro zone debt crisis which is threatening to spillover to larger economies such as Spain and Portugal, 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.

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 and boosted gold, which investors also use as a hedge against inflation and political and economic uncertainty.

US gold futures rose $11.50 to $1,670.30 an ounce - still off Thursday's record around $1,684.9 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 Sep-2010 to Apr-2011 price surge remain intact,” Morgan Stanley said.

DATA EYED

Investors will await US non farm payrolls data, due at 14:30 SA time, 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 as it would raise the prospects of further quantitative easing in the United States which could likely support investors 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,” Norman said.

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.

Autocatalyst metals platinum and palladium have come under pressure this week as investors seeing a deteriorating economic picture and expecting lower vehicle sales have sold their holdings.

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 0.7 percent to $1,706.24.

“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, analyst at thebulliondesk.com wrote in a note.

Palladium fell 0.7 percent to $735.30. - Reuters