Gold is considered a safe investment and usually gains at times of global economic uncertainty.
Silver also continued to climb, to above $40 an ounce, its highest price for two months.
"Gold hit another milestone... at $1,600 as investors lose confidence in the ability of politicians to get a grip with the debt problems weighing down on sentiment," said Michael Hewson from CMC Markets, a trading group.
"More advances look likely," he said.
The record breaking price comes ahead of Thursday's summit of eurozone leaders in Brussels where they will once again try to contain the growing debt crisis.
Investors are concerned that Greece may default on its debt, and countries such as Italy and Spain, who are also struggling with high debt levels, will get pulled into the crisis.
Meanwhile in the US politicians are struggling to reach an agreement on a deficit reduction plan in time to avoid a debt default before the deadline of 2 August.
"I think the concern is that if we see another round of so called quantitative easing, it's basically de-basing the US dollar. It's putting new dollars into the system and that of course makes investors concerned about holding on to US dollars.
"When they look at the alternative, the euro and the issues that are now affecting the euro, they look for alternatives and gold of course is one of the first places they go, along with other so-called hard commodities," he said.