Bullion roared to record highs above $1,700 an ounce on Monday as an unprecedented downgrade to the US credit rating sent investors scrambling out of riskier assets, hammering equity markets and the dollar.
Both US gold futures and cash gold could rise further if pledges by the Group of Seven nations to support battered financial markets fail to bear fruit as investors turn their attention to the Federal Reserve's policy-setting committee, the FOMC, meeting on Tuesday.
The one notch downgrade by Standard & Poor's of the US long-term rating on Friday added to the threat of contagion from the euro debt crisis, fears over recession in the United States and even the possibility of a third round of US quantitative easing.
Spot gold touched a lifetime high around $1,714 an ounce, its 11th record in 19 sessions -- lifting the price of silver by more than 5%. The US December gold contract also hit a record about $1,718 an ounce.
"What people are realising is that dollar and euro currencies have real problems and I think that's manifesting in the gold price," said Dominic Schnider, an analyst at UBS Wealth Management.
"That's why we increased the gold price to $1,800, but I would say the way things evolve right now I really could even imagine $2,000 being in the cards. The chances have increased that we'll reach $2,000 -- the forecast remains 12-month $1,800, but the risk is that we will actually hit towards $2,000."
Premiums for gold bars were mostly steady as purchases from investors who are worried about the state of the global economy helped the physical market offset pressure from record bullion prices. Premiums for gold bars were at $1 in Hong Kong and 60 cents in Singapore.
Finance chiefs from the world's industrial powers pledged on Sunday to take whatever actions were needed to steady financial markets, spooked by the political wrangling in Europe and the United States over slashing their huge budget deficits.
Treasury secretary Timothy Geithner said US Treasury debt is as safe as it was before the S&P downgrade, urging European leaders to ensure there is an "unequivocal financial backstop" for euro zone governments facing fiscal and debt problems.
"I guess the uncertainty in the financial markets is keeping gold prices underpinned. It's essentially safe-haven buying," said Ong Yi Ling, investment analyst at Phillip Futures.
"One of the events that investors will watch is of course the FOMC meeting that is scheduled Tuesday ... investors will scrutinise the statement on the assessment of the economy and outlook for monetary policy."
Investors are watching for any statement on whether the Fed will ease monetary policy further.
Gold priced in sterling jumped to a record around 1,043 pounds following gains in dollar-priced gold. Bullion priced in euro was also at an all-time high.
Shares tumbled on Monday despite efforts by global policymakers to stem a collapse in investor confidence after S&P downgraded the US credit rating, but the euro jumped on hopes the ECB will act to stop Europes's debt crisis from engulfing Italy and Spain.
The lingering economic crisis has been a boon for safe havens like gold, which has risen for six successive weeks and is up 13% since the start of July.
Gold, which has gained more than 20% this year, had shrugged off data showing the US economy generated 117,000 jobs last month and unemployment fell to 9.1%.
The dip in the jobless rate reflected more of a contraction in the size of the work force than an improved employment picture.
"I think troubles in Europe are also undermining markets. Progress in dealing with Europe sovereign debt issues is painfully slow," said Natalie Robertson, a commodities strategist at ANZ.
"But prices are overbought at the moment. If you look at the RSI, it's above the 70 level. If you look at technicals, it could be vulnerable to some profit taking."
Data released by the US Commodity Futures Trading Commission showed managed money in gold futures and options raised their net length to a five-year high in the week up to Aug 2.
In the energy market, crude fell more than $2 a barrel on Monday on the S&P downgrade.