Gold held near $1,200 (U.S.) an ounce in Europe on Friday, dipping slightly as investors cashed in some gains after the previous session's five-month high, but with underlying safe-haven demand still firmly underpinning prices.
The metal hit record highs in sterling prices as the prospect of a hung parliament in the United Kingdom after a bitterly fought general election hurt the pound.
Spot gold was bid at $1,199.15 an ounce at 0940 GMT, against $1,207.25 late in New York on Thursday.
In that session it rose as high as $1,210.35 an ounce, and although it has since given up some of those gains, the metal still has its sights firmly set on December's all-time high of $1,226.10 an ounce, traders said.
"Certainly a pull-back in this market is more than likely, but the overall trend for gold is higher," said Peter Hillyard, head of metals sales at ANZ Bank in London. "Gold's run-up is related to the various economic themes running through Europe."
"It is a question of people being fearful of what is happening to the euro and a recognition of the financial mess that people find themselves in," he said. "That has people focusing more on what is a reasonably safe haven, and that is gold."
U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $3.00 to $1,200.30 an ounce. Traders are awaiting fresh direction from U.S. non-farm payrolls data due at 1230 GMT.
The precious metal has risen almost 2 per cent this week as investors sought a haven from the growing risk that serious debt problems seen in Greece could spread elsewhere in the euro zone.
The euro regained some losses on Friday but was still on track for big falls this week as concerns that Greece's debt problems would spread prompted investors to shed riskier assets. The flight to quality took German bond yields to record lows and lifted Bund futures on Friday, while nervous investors sold peripheral euro zone states' debt.
PHYSICAL INVESTMENT SOARS
Physical investment demand for gold soared on Thursday, dealers said. UBS analyst Edel Tully said in a note the bank's Zurich and Geneva sales desk experienced exceptionally strong demand for small bars and coins on Thursday.
"All size bars up to 1 kilogram are wanted by retail investors. Buying has been evident all week, but demand yesterday was the greatest that we have experienced since 2008," she said. "Current gold demand reflects investor fear and extreme risk aversion."
Meanwhile holdings of the world's largest gold exchange-traded fund, the SPDR Gold Trust , soared nearly 20 tons - its biggest one-day volume rise since Feb. 2009 - to a record 1,185.787 tons on Thursday.
Jewellery demand was softer, with dealers in major gold consumer India reporting dwindling demand for a sixth straight session on Friday as prices traded near their record highs and a weaker rupee made the metal more expensive.
An inconclusive outcome to the bitterly fought UK election on Friday lifted sterling gold to a record 828.20 pounds an ounce in early trade, while euro-priced bullion held near Thursday's record high of 962.20 euros an ounce.
"Denominated in euros, the 1,000 euros a troy ounce mark is now in reach," said Commerzbank in a note.
Among other precious metals, platinum continued its strong recovery from Wednesday's one-month low, rising to $1,661 an ounce from $1,625. Palladium was at $501.50 versus $502.50, and silver [XAG=]at $17.62 an ounce against $17.61.