Gold is often seen as an alternative investment during times of geopolitical and financial uncertainty, gaining alongside bond yields and the Japanese Yen while stocks usually take a
President Donald Trump last week fired FBI Director James Comey, triggering a political firestorm which culminated on Wednesday in the Justice Department's appointment of a special counsel to probe possible ties between Russia and Trump's 2016 presidential campaign.
"Political risk is back on again after market participants became overly complacent following the outcome of the French elections," Commerzbank analyst Carsten Fritsch said.
"Risk sentiment took a major hit," he said.
The dollar index, which measures the greenback against a basket of six major currencies, was headed for its worst week in nine months while world stocks were set for the first weekly fall in five.
New applications for U.S. jobless benefits unexpectedly fell last week and the number of Americans on unemployment rolls tumbled to a 28-1/2-year low, pointing to rapidly shrinking
labor market slack.
"Safe-haven buying has provided strong support to gold prices over the past six months," ANZ said in a note.
"However, rising geopolitical risks in the U.S. and elsewhere are likely to propel prices even higher, despite the specter of a rate hike in the U.S. next month."