Singapore: Gold edged up on Friday as investors used bullion to shelter from the storm engulfing financial markets on concerns that the United States may be facing another recession and Europe's debt crisis is spreading to some of its largest economies.
Gold fell as much as $40 an ounce from a record high on Thursday because investors needed to sell the precious metal to cover losses in other asset classes, but the decline in prices as well as tumbling equities spurred bargain hunting.
Spot gold rose 0.35 percent to $1,653.59 an ounce by 0431 GMT, having hit a low of around $1,641. Bullion struck a record around $1,681 an ounce on Thursday before losing much of the gains.
"I don't hear anybody saying that the bears are coming," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"The market has dropped down too much, so bargain hunters are buying a little bit at the lower end. There doesn't seem to be too much change in sentiment."
The Nikkei fell to its lowest since its post-quake plunge in March after US stocks slipped on worries about the global economy, but the index later stabilised as foreign investors appeared to have finished lightening their portfolios.
In the physical market, premiums for gold bars were steady at 50 cents to $1 to the spot London prices in Hong Kong, while in Singapore, the value was little changed at as much as 80 cents.
"Investors are more interested in playing the spread now. I mean, they are buying gold at around $1,640s and selling it at around $1,650s. I do see physical demand from jewellers, although the amount is not big," said a dealer in Singapore.
"Premiums are still unchanged at 20 to 80 cents, depending on the brand."
Bullion prices have risen more than 15 percent this year.
The need for investors to book those profits and boost liquidity may force prices lower in the next few days.
"Bullish sentiment in gold could be tempered as wary short-term investors look to take profits," said Ong Yi Ling, an investment analyst at Phillip Futures.
"Investors will be watching the all-important non-farm payrolls data that we will be getting today and whether the figures turn up worse than expected. It seems everyone is bracing for the worst."
US economic data suggests growth in the world's largest economy was slowing from what was already a sluggish pace even before politicians agreed budget cuts. Investors await data later on Friday on US jobs growth for July, which may show the impact of the political stand-off on debt.
Europe's debt crisis is threatening to swallow two of the continent's largest economies, Italy and Spain. European policymakers tried to turn a more powerful fire hose on the euro zone debt crisis on Thursday but financial markets were unimpressed with their response.
With few other places to go the metal still looks attractive to investors trying to maintain the value of their capital.
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.
While spot gold rose, US gold futures fell $1.5 to $1,657.5 an ounce - nearly $30 off Thursday's record around $1,684 an ounce. They had dropped as low as $1,644.2 on Friday.
Oil markets were headed for their biggest weekly loss in three months on Friday on fears that a slower economy would mean less demand for fuel. The losses have erased oil's gains this year.
Base metals also dropped, with the most-active October copper contract on the Shanghai Futures Exchange down more than 3 percent in early trading on Friday, catching up with overnight losses in London.
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