Gold bullion prices rose to $1,670 per ounce Monday lunchtime in London - a 2% gain on last Friday's close - while stocks and commodities also gained and government bonds fell following a pledge by France and Germany to recapitalize Europe's banks.
Silver bullion rose to $32.37 - 3.8% up on where it ended last week.
"Physical demand for gold is very strong, with gold below $1,650", says Marc Ground, commodities strategist at Standard Bank.
"[This means] the potential for future short covering exists, which could see prices push higher."
"The physical premium [on the Shanghai Gold Exchange] has been very strong," adds one gold bullion dealer in Hong Kong.
China meantime saw strong gold sales during last week's holiday period - in sharp contrast to disappointing real estate figures.
The leaders of France and Germany announced Sunday that they will have a new plan to deal with the ongoing euro-zone crisis within the next three weeks.
"We will recapitalize the banks," said French president Nicolas Sarkozy, as part of a joint briefing held with German chancellor Angela Merkel in Berlin.
"By the end of the month, we will have responded to the crisis."
"The Merkel-Sarkozy announcement is positive as it focuses on banks," says Alberto Gallo, London-based strategist at Royal Bank of Scotland.
"The timing appears ambitious, however. Having a full response to the crisis by month-end sets a high bar."
"Typically liquidity concerns and funding issues are not gold's friends," says a note from UBS this morning.
"While a detailed plan was lacking, we view any progress on bank recapitalization as a positive for gold."
France reportedly wants to use funds from the European Financial Stability Facility - the euro zone's EUR440 billion bailout fund - to recapitalize French banks. Germany, however, is said to view such a step as a last resort.
Franco-Belgian banking group Dexia agreed this morning to the nationalization of its Belgian division by that country's government.
The Belgian government will buy Dexia Bank Belgium for EUR4 billion. It has also pledged to guarantee EUR90 billion of Dexia's borrowing over a period of ten years - the equivalent to around a quarter of Belgium's GDP last year by International Monetary Fund estimates.
Ratings agency Moody's warned on Friday it may cut Belgium's credit rating. Fellow ratings agency Fitch meantime downgraded both Italy and Spain.
Over in China meantime - the world's second-largest source of private gold bullion demand - sales of gold during last week's National Day Golden Week "were 50% higher from a year earlier," according to a note from HSBC.
"Due to positive retail buying, we remain upbeat on gold prices."
The October Golden Week is also traditionally a peak period for real estate demand. Data taken from 20 major cities however show home sales last week were 23% down compared to a year earlier - making it the worst in six years. Shanghai saw a 40% drop, news agency Bloomberg reports.
"We expect further downside for both property prices and transaction volumes for the rest of the year," says Jinsong Du, property analyst at Credit Suisse in Hong Kong.
"But most developers were still not willing to cut prices beyond marketing gimmicks, hoping for the government to loosen the [monetary policy] tightening measures soon."
China's central bank has raised its interest rates five times in the last 12 months - while increasing commercial banks' reserve requirements nine times. The annual rate of consumer price inflation fell to 6.2% last month - down from 6.5% in August.
In New York, the net long position of bullish minus bearish gold futures and options contracts held by noncommercial - or "speculative" - traders on the Comex rose2.2% in the week ended Oct. 4, to the equivalent of around 505 tonnes of gold bullion, according to data released by the Commodity Futures Trading Commission on Friday. This follows the previous week's fall of 20%.
"Gold ETF stocks [have] changes only minimally," said a note published by German bullion refiner Heraeus last week, contrasting this with the fall in speculative futures positions.
"From this it is evident that the longer-term oriented investor...still remains faithful to the yellow metal."
Ben Traynor is editor of Gold News, the analysis and investment research site of gold ownership service BullionVault. He was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.