Gold rose nearly 1 percent to a two-month high on Friday, and bullion posted its biggest weekly gain in five weeks as disappointing U.S. data dimmed hopes for a swift economic recovery.
Silver rose 1.5 percent for an eighth consecutive daily gain. The grey metal has sharply outperformed gold and was up 14 percent this week for its biggest weekly rise in almost five years.
Gold's appeal as an investment hedge increased after U.S. economic reports on Friday showed weaker consumer confidence in August and lower-than-expected residential construction last month.
Friday's data suggested that a recent spike in interest rates, in anticipation of the U.S. Federal Reserve scaling back its massive bond purchases as early as next month, was starting to have an impact on households, analysts said.
"Uncertainty is re-entering the economy and making money managers think," said Carlos Perez-Santalla at futures brokerage Marex Spectron.
For the week, gold was up almost 5 percent.
Gold's rally came as U.S. stock indexes were lower on Friday and on track for their biggest weekly declines in months.
Benchmark U.S. 10-year Treasury bond yields surged to a two-year high as investors bet that recent signs of economic growth will spur the Fed to begin paring back its bond purchase program next month.
Spot gold was up 0.9 percent at $1,377.60 an ounce by 3:01 p.m. EDT (1901 GMT), having set a two-month high of $1,379.60.
On Thursday, gold rallied more than 2 percent as a drop in the U.S. dollar triggered short-covering and a technical breakout once prices breached key resistance at $1,350 an ounce.
Gold completed a bullish reversal pattern after Thursday's breakout, and prices could now rise sharply higher toward the next major resistance in the $1,500 area, said Mark Arbeter, chief technical strategist at S&P Capital IQ.
Silver last traded up 1.5 percent at $23.31 after earlier rising to a three-month high of $23.40 an ounce. The metal posted its strongest weekly rise since September 2008, with gains of around 13.5 percent.
ETF FLOWS, PHYSICAL DEMAND IN FOCUS
U.S. gold futures for December settled up $10.10 at$1,371 an ounce, with trading volume about 10 percent below its 30-day average, preliminary Reuters data showed.
Relatively low volume in the quieter summer months suggests that the metal could easily give up its gains, traders said.
As a gauge of investment sentiment, holdings of SPDR Gold Trust, the world's largest gold-backed ETF, fell just 0.3 tonnes to 912.92 tonnes on Thursday. Rare inflows were seen in the fund twice over the past six sessions but holdings remain at four-year lows.
In the physical market, a record low in the rupee lifted Indian gold futures above the closely watched 30,000-rupee mark. Dealers said the high local price of gold in the world's largest gold buyer is expected to weigh down on demand.
Platinum edged up 0.2 percent to $1,524.49 an ounce while palladium was up 0.3 percent at $761.47 an ounce.