Gold slipped on Tuesday to around $US985 an ounce, continuing a correction after touching an 11-month high above $US1000 last week.
But traders said more bad economic news could push gold above that level again as people seek a safe place for their money given nagging worries about the stability of the financial sector and longer-term inflation prospects.
Spot gold was trading at $US985.40 an ounce in Asian trade, down 0.6% from New York's notional close on Monday.
Gold hit $US1005.40 an ounce on Friday, just 2.5% below the record $US1030.80 reached last March.
"Despite the correction going on, it is clear that gold is the only class of assets investors can put their money in,'' said Tatsufumi Okoshi, senior economist at Nomura Securities Co's financial and economic research centre.
"Stocks are hit hard, other commodities are down, and an expected fall in bond prices keeps new money from flowing into bonds,'' he said, referring to a glut of government debt supply in the United States and other countries.
Gold is becoming more attractive compared with US Treasuries, often seen as the least risky asset, as the slide in Treasury yields is no longer sustainable due to an impending surge of bond issues, analysts said.
Underlining the severity of US debt problems, President Barack Obama pledged on Monday to cut the ballooning budget deficit in half over the next four years.
Obama's month-old administration has pushed through a $US787 billion economic stimulus package to try to jolt the world's biggest economy out of recession.
Among other commodities, oil fell below $US38 per barrel on growing economic worries.
The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings remained at a record high of 1028.98 tonnes at February 23, a level it first marked on February 19.
