"People are choosing gold right now looking for some safe-haven investment and I think that might continue for a while," Michael Daly, gold specialist, at PFGBest in Chicago.Spot gold's rose to $1,529.94 an ounce by 2:50 p.m. EDT from $1,515.70 late in New York on Tuesday. Earlier, it reached a two-week peak at $1,533.45.
U.S. gold futures for August delivery added $16.50 an ounce to settle at $1,529.20 an ounce, a 1.09 percent increase, after rising earlier to a two-week peak at $1,534.50.
"With China raising rates, and normally when a bank of that size raises rates it's negative for gold and silver, but I think savvier investors are more concerned about inflation, because higher cost of living is going to trickle down globally," Daly said.
Overnight, China's central bank increased interest rates by 25 basis points, its third increase this year, making clear that taming inflation is a top priority even as economic growth slows modestly.
"In real terms, you are not making any money by just holding cash. A lot of new middle-class Chinese have cottoned on to this, and there is a lot of demand for gold as a store of wealth under these circumstances," said VM Group analyst Carl Firman.
The euro slid for a second straight day against the U.S. dollar as the Chinese interest rate hike raised global growth concerns in a market already unnerved by the downgrade of Portugal's debt to junk.Often this would weigh on dollar-denominated gold in overseas markets. But the risk aversion trade has drawn investors to both assets.
The metal was also lifted by concerns over euro zone debt after Moody's cut Portugal's credit rating to junk status, and an upcoming debate on raising the U.S. debt ceiling.
"The issues surrounding the euro zone are going to last for quite some time. So, they are something that markets are going to have to be dealing with on an ongoing basis," said Macquarie analyst Hayden Atkins.
Bonds issued by the euro zone's weaker countries came under intense pressure after the Moody's cut, which raised fears Portugal would also eventually be pushed into a debt restructuring.
Gold also received a nudge up from safe-haven buyers eyeing a report showing sluggish growth in the U.S. services sector in June.
ECB MEETING AWAITED
Traders will be watching the European Central Bank's policy meeting on Thursday. The bank is set to lift euro zone interest rates to 1.5 percent and to show no softening of its stance that Greece must not default on its debts.
Expectations that the ECB will hike rates more quickly than the U.S. Federal Reserve have helped lift the euro more than 7 percent against the dollar so far this year, supporting gold.
Also on Thursday, U.S. weekly jobless claims are seen coming in at levels that continue to show a weak jobs sector, anticipating a tepid U.S. employment report for June on Friday. Economists, on average, look for payrolls growth of 90,000.
From a technical perspective, the precious metal is facing tough resistance after its latest break higher.
"We see resistance at $1,528, representing a 61.8 percent retracement of our June drop from $1,558 to $1,479," said ScotiaMocatta in a note.
Other analysts predict a longer period of sideways consolidation roughly between $1,475 and $1,550 an ounce.
On the supply side, investors were awaiting fresh developments in a strike in Freeport-McMoran's Indonesia mine, as well as the threat of a strike in South Africa's main gold mines.
Silver was up at $35.98 an ounce from $35.45 on Tuesday, after reaching a session high at $36.23. Spot platinum eased to $1,723.74 an ounce from $1,737.05, and spot palladium slipped to $764.85 an ounce from $770.38 on Tuesday.
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