Gold hit another all-time high on Friday as investors sought a safe haven after anemic US growth data raised the specter that a potential recession could spur the Federal Reserve to loosen monetary policy.

Gold was helped by a sinking dollar, as investors fretted over sovereign debt in the United States and Europe. US political leaders remained at odds over how to reduce the deficit as the clock ticked toward an Aug. 2 deadline to raise the government debt ceiling.

"The dollar is looking less and less attractive from a growth, fiscal and monetary perspective," said Kathy Lien, director of currency research at GFT Forex in New York.

Bullion, which usually rises as the dollar weakens, hit its third record in five days, notching a near 9 per cent monthly gain for July.

Gold rallied after US Commerce Department data showed the economy stumbled in the first half of 2011 and came close to contracting in the first quarter. Some investors worried about the risk of a recession that could make the Fed more accomodative, feeding inflation and boosting gold prices.

"The weak economic data suggests that you may see some form of stimulus, certainly highly accommodative monetary policies, and that will continue to put a bid on gold prices," said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott, which oversees $54 billion in assets.

"As long as there is no re-normalization of a steady state of economic or fiscal circumstances, gold will move higher."

But some investors worried that the US economy could enter a recession severe enough to depress prices in a round of deflation. This could push gold prices down sharply. This fed volatility in gold prices.

Investors kept a close eye on Washington, because gold prices could tumble if government leaders reach a US debt-ceiling deal that boosts investor confidence in other financial markets, analysts said. But a ratings downgrade on US debt would force the world's largest institutional investors to sell off US Treasury holdings, and gold would be the best refuge asset for the funds, said Peter Schiff, CEO of Euro Pacific Precious Metals.

Spot gold touched an all-time peak of $1,632.30 an ounce, and was up 0.5 per cent at $1,623.99 by 2:51 p.m. EDT.

On weekly charts, CitiFX strategists said bullion's monthly close above $1,557.75 indicates that July is a bullish outside month, confirming a 2011 target between $1,700 and 1,750.

The US December contract settled up $15 at $1,631.20 an ounce. Futures volumes were lower than the last several sessions, as most investors had completed contract rollover ahead of the August contract's first-notice day on Friday.

Silver rose 0.8 per cent to $39.97 an ounce, but was off a more than two-month high of $41.42 hit this week. It posted a gain of around 15 per cent for July, its best month since April.

The CBOE Gold ETF Volatility Index, which is often referred to as the "Gold VIX" and is based on SPDR Gold Trust options, rose to its highest in over two months, as the market braced for a swift pullback following the rally.

Investor unease can also be seen in the holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, which rose 1.5 per cent on Thursday from a day earlier to a six-month high of 1,262.98 tonnes.

Debt unease, recession fears

US output increased at a 1.3 per cent annual pace in the second quarter as consumer spending barely rose. Other US economic data this week also pointed to a slower economic growth for the rest of the year.

"The catalyst to drive gold higher right now is the debt ceiling, but the underlying fundamental reality is the growing risk of a 2012 recession," said James Dailey, portfolio manager of TEAM Financial Asset Management, which oversees $200 million in assets.

Debt troubles in the euro zone were also on investors' radar screens, after ratings agency Moody's put Spain on review for possible downgrade.

In South Africa, talks were to resume on Monday between gold mine workers and the major producers aimed at ending a strike. Above-ground stocks would lessen the effect of labor-related supply outages.

Spot platinum was down 0.3 per cent at $1,777.24 an ounce.

Palladium eased 2 cents at $823.73 an ounce, but the metal notched a monthly rise of nearly 10 per cent, its biggest this year. – Reuters