By Zandi Shabalala
Spot gold was up 0.7 percent at $1,332.17 an ounce by 1253 GMT, having touched its highest since Sept. 15 at $1,333.02.
The precious metal is up 0.9 percent this week and set for its longest run of weekly gains since April.
U.S. gold futures were up 0.8 percent at $1,332.90.
The dollar index, which measures the greenback against six major currencies, fell to its lowest since Sept. 11 at 91.308.
The euro jumped to a three-year high after party sources said German Chancellor Angela Merkel's conservatives and the Social Democrats (SPD) had agreed a blueprint for formal coalition negotiations.
"This agreement of a coalition will change that situation of a hung parliament in Germany and that is why the euro is positive, weakening the U.S. dollar, which is one of the reasons why gold is firmer this morning," said Quantitative Commodity Research consultant Peter Fertig.
The news from Germany helped the euro to extend gains made on Thursday after minutes from a December European Central Bank meeting signalled that the ECB could begin to wind down its 2.5 trillion euro ($3 trillion) stimulus programme this year.
A stronger euro potentially boosts demand for gold by making dollar-priced bullion cheaper for European investors.
Physical gold demand remained lacklustre across top Asian centres this week as buyers were put off by a rally in prices, but an approaching Chinese New Year could reignite appeal for the yellow metal.
U.S. Consumer Price Index (CPI) data is due later on Friday.
Among other precious metals, spot silver rose 1 percent to $17.13 an ounce, but was heading for its first weekly loss in five weeks.
Palladium was up 0.6 percent at $1,088.60 after dropping on Thursday to a more than one-week low at $1,075.50.
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