Gold prices jumped over 1% Tuesday on safe-haven demand as fears of a full-out war in the Middle East escalated after Iran fired ballistic missiles at Israel.

Spot gold gained 1% to $2,661.63 per ounce, as of 1:40 p.m. ET (1740 GMT), after hitting an all-time high of $2,685.42 on Thursday. U.S. gold futures settled 0.9% higher at $2,690.3.

Iran fired a salvo of ballistic missiles at Israel on Tuesday in retaliation for Israel's campaign against Tehran's Hezbollah allies in Lebanon.

"If there's serious casualties in Israel, then we may have an all out Middle East War, that's what I think traders are worried about right now," which could prompt further safe-haven demand for gold, said Jim Wyckoff, senior market analyst at Kitco Metals.

Gold is used as a safe investment during times of political and financial uncertainty.

"It's instinctive safe-haven buying but unless an Iranian missile gets through and does serious damage in Israel it may be similar to the April attack with similar ordnance that was almost completely intercepted," said Tai Wong, a New York-based independent metals trader.

Meanwhile, the benchmark U.S. 10-year bond yield slipped, making non-yielding bullion more attractive.

The market will closely watch U.S. labor data this week, and remarks from various Federal Reserve officials, for more hints on the Fed's policy stance.

Bullion on Monday posted its worst day in over four weeks after Fed Chair Powell suggested the Fed will likely pursue quarter-percentage-point cuts moving forward.

However, the causes of the recent rally - expectations of lower U.S. interest rates and safe-haven demand driven by geopolitical instability - remain intact, said Ricardo Evangelista, senior analyst at ActivTrades.

Spot silver rose 0.7% to $31.36 per ounce, platinum gained 1.2% to $987.70, while palladium fell 0.6% to $994.50.