Updated from 11:52 a.m. EST

Gold broke higher Wednesday after news of softness in the manufacturing sector combined with worries about terrorism and North Korea's atomic program to sink the dollar.

Contracts for April delivery of bullion closed up $7.70 at $657.90 an ounce on the Comex division on the New York Mercantile Exchange. Prices reached an intraday high of $660.30 before partially retracing.

The exchanged traded funds that hold the metal, streetTracks Gold Shares ( GLD) and iShares Comex Gold Trust ( IAU), both gained about 0.8%.

Although the first news of the day -- better-than-expected fourth-quarter GDP growth and lower-than-forecast wage inflation -- boosted the dollar early on, that quickly turned around following a weak report on Midwestern factory activity and shaky construction statistics.

The Chicago purchasing managers' index fell to 48.8 in January, way below consensus forecasts of 52 and down from 51.6 in December. A figure below 50 indicates a contracting manufacturing sector.

"Manufacturing is not getting any better and it was starting from a low base," says Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

He believes a weaker economy will emerge through the first and second quarters, which should lead to a cut in short-term interest rates by Federal Reserve policymakers during the summer. He's also forecasting further declines in the dollar against the euro.

Commenting on the construction industry, which saw spending drop 0.4% in December, T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, writes in a research report that, "It may indicate that the building part of the correction is unfolding faster than previously thought."

The dollar was recently buying 120.73 yen, down from 121.61 yen late Wednesday. The euro was buying $1.3029 up from $1.2967 previously. The value of gold tends to move inversely with that of the U.S. currency.

Providing some more lift for gold was news out of the United Kingdom that suspected terrorists were planning to kidnap a British Muslim soldier and videotape his beheading, the Associated Press reports. Authorities arrested nine suspects following predawn raids.

Elsewhere, Reuters reports that North Korea is threatening to detonate another nuclear weapon if progress isn't made by continuing talks with the U.S. and other nations.

Gold is often purchased during times of war or geopolitical instability, and such worrisome news will likely help keep a floor under prices.

The Amex Gold Bugs Index rose 2%, with components Eldorado Gold ( EGO) and Gold Fields ( GFI) helping lead the charge, up 4.4% and 3.8%, respectively.

Turning to base metals, Comex copper contracts tacked on 3 cents to close at $2.59 a pound.

Canadian aluminum smelter Alcan ( AL) reported disappointing earnings, but the shares were still ahead by 0.3%.

As for ferrous metals, U.S. Steel ( X) received a rating upgrade from Longbow to neutral from sell. In addition, Goldman Sachs upped its stock price forecast to $113 from $104. The stock moved up about 4%.