Gold prices rose back above $1,900 an ounce on Monday as expectations grew that the United States could implement a further round of monetary easing after Friday's weak payrolls data, while concerns over the euro zone debt crisis resurfaced.
Stock markets weakened, with the FTSEurofirst 300 sliding 2 percent in early trade, the euro eased versus the dollar and oil prices fell as investors sold out of assets seen as higher risk in favour of havens like gold and Bunds.
Spot gold was up 0.9 percent at $1,901.50 an ounce at 0916 GMT. It is one of this year's best-performing commodities , up by more than a third in 2011 to date.
European shares fell on concerns that the United States could be set for recession after Friday's weak payrolls data, while German Bund futures hit record highs ahead of a series of challenges in Europe this week.
Standard Bank analyst Walter de Wet said a court ruling due Wednesday that may reduce the freedom of the German government to finance rescues of crisis-hit countries like Greece was supporting interest in safe-haven gold, while a European Central Bank meeting on Thursday will be closely watched.
"There is a growing expectation in the market that we will have to get some policy response from the ECB at some stage," he said. "Whatever that will be, it is more likely to be positive for gold than not. Either they will have to cut rates, or they will have to be more accommodating."
"That just adds to what we're seeing happening in the United States," he said. "It seems that people are more convinced that gold will not come off. Whenever gold retreats $20, $30, we see decent buying coming through."
Gold had a choppy month in August, peaking at a record $1,911.46 an ounce and trading within its biggest range in absolute terms since January 1980, when gold hit a record $835 an ounce, or above $2,000 in inflation-adjusted terms.
It is being lifted by expectations that the failure of the U.S. economic recovery to gain traction will force the Federal Reserve to embark on a third round of quantitative easing.
"The positive for gold (after Friday's payrolls U.S. data) lies in the possible policy response to the lack of employment growth," said HSBC in a note.
"Market discussions quickly centered on the possibility of a third round of quantitative easing. The two previous bouts of QE saw significant gold price appreciation."
COIN SALES CLIMB
Managed money in gold futures and options reduced their net length for a fourth straight week to August 30, the latest data from the U.S. Commodity Futures Trading Commission showed late on Friday.
"Current positioning is in line with the year-to-date weekly average, and considering the uptick in both U.S. and European risks this week, we certainly don't consider current spec positioning as been excessive," UBS said in a note.
Sales of gold and silver American Eagle coins were at their highest since January in August, meanwhile, data from the U.S. Mint showed. The Mint sold 112,000 ounces of gold coins and 3.68 million ounces of silver coins last month.
Gold prices quickly shrugged off news that the Shanghai Gold Exchange had temporarily raised trade margins -- which cover the risk of default -- for its gold and silver forward contracts.
A margin requirement hike on COMEX gold contracts was instrumental in pulling gold from record highs last week.
"It's not going to have a major effect," said Standard Bank's de Wet. "A lot of demand we see out of Asia is physical rather than speculative."
Among other precious metals, silver was flat at $43.19 an ounce. Holdings of the world's largest silver-backed exchange-traded fund, the iShares Silver Trust , rose 35 tonnes on Friday, the trust said.
Spot platinum was up 0.1 percent at $1,880.25 an ounce, while palladium was down 1.6 percent at $773.40 an ounce. Gold regained its premium over platinum, with the autocatalyst metal struggling for traction as demand fears grew.