Gold edged down, but stayed close to its highest level in almost seven weeks on Monday as worries over a slowing Chinese economy pushed investors away from risky assets and into those deemed as safe haven.
Asian equities tumbled to three-year lows, the US dollar retreated and industrial commodities from copper to oil slid to their weakest since 2009.
"Certainly gold is finding itself a bit of a safe-haven bid with all the volatility that's going on in markets," said Victor Thianpiriya, commodity strategist at ANZ Bank.
"If things do get a lot worse then gold will certainly go a lot higher."
Spot gold was down 0.6 per cent at $1,153.20 an ounce by 0638 GMT, coming off the day's peak of $1,165.11. But bullion's drop was shallow compared to a 3.2 per cent fall in US crude and 2 percent decline in copper.
Gold rose to as much as $1,168.40 on Friday, its highest since July 7. It gained more than 4 per cent last week, the most since mid-January.
Fears of a China-led global economic slowdown drove Wall Street to its steepest one-day drop in nearly four years on Friday, amid continued weakness in the Chinese manufacturing sector and its stock markets.
Chinese stocks plummeted 9 per cent on Monday, with the Shanghai index giving up all its gains for the year on investor disappointment that Beijing held back expected policy support at the weekend after markets shed 11 per cent last week. Japanese equities plunged nearly 5 per cent.
"China has been the global cushion in the last decade or so in the face of monetary easing policies from other central banks. It was the cushion that took in all the deflationary pressure as well as providing global growth," said Howie Lee, analyst at Phillip Futures in Singapore.
"The fear right now is there's nothing to fall back on," said Lee. Gold looks on track to rally to $1,200, he said, a level last seen in June.
Gold has now rebounded 7 per cent from a 5-1/2-year low of $1,077 reached in late July.
US gold for December delivery slipped 0.5 per cent to $1,153.80 an ounce.
Worries over global growth have pared expectations of a US interest rate hike this year, which bodes well for gold.
"It doesn't look like the market is factoring in a rate hike until March next year," said ANZ's Thianpiriya. "It implies significantly more market volatility in global markets and that's positive for gold."
Fed officials planning to lift interest rates as soon as next month have been encouraged by solid U.S. jobs growth, but inflation holds the key to how far the Fed can go in moving rates away from zero.
Amid the decline in industrial commodities, spot palladium dropped 2.1 per cent to $589 an ounce. Platinum was down 0.7 per cent at $1,011 and silver eased 1.4 per cent to $15.09.
