Gold slid to a 6-1/2 week low on Friday, setting the stage for its sharpest weekly drop since December 2008 as it tracked a heavy sell-off in the commodities complex, under pressure as traders sold bullion to cover losses in other assets.
At 1343 GMT, spot gold fell to $1,687.54 a troy ounce, having earlier hit a fresh session low at $1,680.89 -- its lowest level since August 8.
Spot silver also fell sharply, dipping to its lowest level in nearly seven months at $32.33 an ounce as commodities came under heavy pressure on growth fears and slight rebound in the dollar from earlier falls.
A strengthening dollar puts pressure on commodities priced in the U.S. unit as it makes them more expensive for holders of other currencies.
Traders blamed gold's fall on margin calls to cover losses in other assets such as equities and silver, and distress selling by investors who have grown increasingly uncomfortable with the turmoil on the credit market.
"At this point in time I don't think one can say that the safe haven rationale for gold is off. It's just that it has been going up so much that we needed a very deep correction," said MKS Finance head of trading Afshin Nabavi.
"We see support starting to build around the $1,670 level provided silver doesn't break below $32."
In an attempt to soothe investors, finance ministers and central bankers from the Group of 20 said they would take "all steps necessary" to calm the global financial system and said central banks were ready to provide liquidity.
Equity markets in Europe were under pressure while U.S. stocks opened lower, as talk about an imminent Greek default gathered pace.
But analysts said investors were likely to watch further developments on the global economy before piling further into gold, with the metal's recent volatility prompting some caution.
Gold hit a record high of $1,920.30 earlier this month. This week it has fallen more than 6 percent and is on track for its biggest weekly drop since early December, 2008. It is still up around 20 percent in the year to date.
"When gold is volatile like this a lot of buyers just sit on their hands and watch. They get nervous. Price volatility is destructive for investors because it erodes their confidence," said Ross Norman of Sharps Pixley.
"People are looking for opportunities to buy into gold on dips. There's scope for upside here but I don't think it will race back towards $1,920 (an ounce)in a hurry."
SILVER NO SAFE HAVEN
The Shanghai Gold Exchange will lift the daily trade limit for its silver forward contract to 12 percent from 10 percent from Sept. 26, it said in a statement on Friday.
Meanwhile, holdings of the largest silver-backed exchange-traded-fund (ETF), New York's iShares Silver Trust fell 0.31 percent on Thursday from Wednesday.
"The latest price trend show that silver is still not regarded as a safe haven, but rather as a precious metal with an industrial character," Commerzbank analysts said in a note.
"We have a similar view and believe that while strong hands will soon take over the helm in the case of gold, silver could remain under pressure."
Falls in silver over the past two sessions have knocked more than 17 percent off its the price, putting the metal on course for its second straight quarterly drop after nine consecutive quarters of gains.
In platinum group metals, platinum slipped 2.4 percent to $1,637.49 an ounce, while spot palladium rose 2 percent to $656.25 an ounce.