Gold Prices rallied to $1583 per ounce Friday morning in London – having eased back in Asian trade following record highs – while stocks and commodities were flat and US Treasury bonds edged up despite warnings that they could lose their AAA status.
Heading into the weekend, Gold Prices looked set to post a 2.5% weekly gain.
Silver Prices rose to $38.35 per ounce – 4.5% up for the week.
"More gains seem likely," says Swiss precious metals group MKS, adding that Gold Prices are "on-course to challenge $1600 as default fears continue to drive investors towards more tangible assets."
"We do see a lot of upside in Gold Prices given it's already passed the key resistance level of around $1,550," agrees ANZ Bank analyst Natalie Robertson in Melbourne.
Ratings agency Standard & Poor's warned on Thursday that the ongoing failure of US politicians to reach agreement on the debt ceiling means "there is at least a one-in-two likelihood" that it will downgrade US government debt within the next 90 days.
"Further delays in raising the debt ceiling could lead us to conclude that a default is more possible than we previously thought," said a statement from S&P. "If so, we could lower the long-term rating on US government this month."
The US Treasury says it expects to hit the $14.3 trillion borrowing limit 18 days from now, on August 2. Republicans and Democrats have so far failed to agree on deficit reduction measures – without which agreement a vote on raising the debt ceiling is unlikely to pass Congress.
The US government is due to make payments on maturing bonds on August 4.
"This is the time" for politicians to tackle the long term US debt problem, John Chambers, chairman of S&P's sovereign ratings committee, told Reuters Friday.
"If you get a small agreement, that will lead to a downgrade."
Chambers warned last month that the government "doesn't have a grace period" – and that it will be declared in default if it misses a single payment.
S&P's announcement follows that of fellow ratings agency Moody's, which said Wednesday it was placing the US on review for possible downgrade.
"Commentators describe the debt ceiling debate as a political charade," says one Gold Bullion dealer here in London.
"But gradually the sensation dawns that this might actually go badly wrong."
Also in Washington on Thursday, Federal Reserve chairman Ben Bernanke – who was testifying to the Senate Banking Committee – denied advocating a third round of quantitative easing.
"We're not proposing anything today...we just want to make sure we have the options when they become necessary."
Bernanke told the House of Representatives Financial Services Committee on Wednesday that persistent economic weakness could imply "a need for additional policy support."
US consumer price inflation for June came in at 3.6% on Friday – the same as the previous month.
Over In Europe on Thursday the International Monetary Fund called for a "greater sense of urgency" on the Greek debt crisis.
"The fiscal situation in Greece threatens market disorder that would affect funding rates for other vulnerable sovereigns and could have severe implications for financial institutions," said an IMF statement.
Eurozone ministers are yet to agree the terms of a second bailout for Greece – which would follow last year's €110 billion rescue package – with Germany keen that private creditors make a contribution.
"Just as on the Titanic, not even first class passengers can save themselves," warned Italy's finance minister Giulio Tremonti on Thursday, calling the Greek situation "a crisis moving through the world like a mutant".
"I would say the Eurozone is not similar to the Titanic," responded Germany's deputy finance minister Jorg Asmussen Friday in a BBC interview – adding there is "no rush" to reach a resolution on Greece since the country is funded until September.
The European Banking Association is due to release the results of stress tests on European banks at 5pm UK time. The stress tests are designed to judge if banks would have sufficient funds to weather various hypothetical crises.
The Financial Times reports that 10 out of the 91 banks tested are expected to fail, with issues arising in five countries including the Eurozone's largest economy Germany.
However, the stress tests will not consider the potential impact of a Greek sovereign default.
"We remain bullish towards gold as the debt crisis in Europe looks likely to worsen in the next two months," says Xu Jiashun, analysts China's second largest futures broker Yongan, adding that heightened risk-aversion should send Gold Prices higher.