Gold jumped more than three per cent on Friday to its highest in nearly three weeks as volatility on currency markets drove investors to buy bullion.
The precious metal reached record highs in both sterling and euro terms.
Spot gold rose as high as $883.30 an ounce and was at 879.00/$881.00 an ounce at 1457 GMT, against $855.55 late in New York on Thursday. It rose to an all-time high of 685.70 in euro terms, and a record 648.51 pounds when priced in sterling.
"There is ongoing nervousness in the market about the banking sector," said Tom Kendall, precious metals strategist at Mitsubishi. "If you are looking to park your cash...there are not many options around and gold is one option."
The dollar strengthened to a six-week high against the euro, as investors worried about the outlook for the euro zone economy.
Key business surveys showed yesterday that euro zone services and manufacturing activity declined at a slightly slower pace in January, a touch better than forecasts, but remained deep in recessionary territory.
"Investors are getting out of currencies and getting into gold," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.
While strength in the dollar against the euro tends to weigh on gold, which is often bought as a hedge against weakness in the US currency, this correlation was trumped by interest in bullion as a safe haven.
"The relationship between gold and the US dollar appears to be broken at present," said Fairfax analyst John Meyer. "Normally a stronger dollar pushes down gold."
"Clearly there is investment money flooding in due to the perceived security of gold," he said.
The other main external driver of gold, oil prices, softened yesterday, falling below $43 a barrel after a larger than expected rise in US crude stocks, and with bearish economic data dampening hopes for a resurgence in demand.
Demand for investment products such as gold coins and bars and physically-backed vehicles such as exchange-traded funds (ETFs) has been strong this week.
"The physical premia seen on the gold market have been very strong in recent weeks, suggesting there is relatively healthy demand," said BNP Paribas analyst Michael Widmer.
The world's largest bullion-backed exchange-traded fund, New York's SPDR Gold Trust, said its holdings rose to a record for the fourth consecutive session on Thursday, climbing 1.6 per cent or 13.15 tonnes to a 819.11 tonnes.
