Gold settled 1 percent higher on Friday, boosted by renewed fund buying and equities' weakness after bullion posted its worst annual decline in more than 30 years.
A combination of brisk coin buying, strong Chinese physical demand and new positions initiated by funds related to new-year index rebalancing also helped lift gold to a weekly gain of more than 2 percent, its largest rise in 10 weeks.
Analysts said that gold appeared to find support from equities' losses this week after bullion's tumble and the stock market's strong run last year.
"Positive bullion prices in reaction to the decline in equities may set the tone for 2014 and reinforce the negative correlation between the two,'' said James Steel, chief precious metals analyst at HSBC.
Spot gold was up 1.1 percent to $1,238 an ounce after hitting $1,240.00 earlier—its highest since Dec. 18.
U.S. gold futures for February delivery settled 1.1 percent higher at $1,238.60 an ounce, up 2 percent on the week.
Gold's gains came after it lost nearly 30 percent in 2013, ending a 12-year bull run, largely due to the U.S. Federal Reserve's plans to unwind its monetary stimulus program.
Chart: Precious Metals
Analysts, however, cautioned that the upward momentum in the early days of the new year may only last a few weeks due to some index rebalancing activity, but the metal could record another drop in value in 2014.
"Gold opened near the lower range, so that's why you see a bit of confidence in buying,'' said Bernard Sin from MKS SA.
"I think we will probably see continued buying until next week…and thereafter it depends pretty much on U.S. figures and what the Federal Reserve is going to do.''
Years of quantitative easing by the U.S. central bank have been a boon for gold by holding down interest rates and stoking inflation fears. But with an improving U.S. labor market and other positive signs in the economy, the Fed decided to scale back the stimulus, hurting gold's appeal.
"We need to make a solid move back above the $1,270 area to really rattle the cage, because that would take us above the recent highs and would signal a break of this downtrend that we've had since 2012,'' said Ole Hansen, head of commodity strategy at Saxo Bank.
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