NEW YORK (Reuters) - Gold rose 1 percent on Tuesday to its highest in nearly three weeks on inflation fears and a technical breakout after breaching key resistance at a 100-day moving average.
A rise in Chinese interest rates for the second time in just over six weeks benefited gold's status as an inflation hedge, even as the move initially prompted selling in the metal along with industrial commodities.
Gold was trying to restore upward momentum after gaining more than 4 percent in the past 10 days, withstanding fading safe-haven demand as U.S. equities rallied to mid-2008 highs and U.S. Treasury bond yields rose for a seventh straight session on inflation worries. .N <US/>
Gold prices spiked after rising above the 100-day average in New York's morning session, triggering technical buy-stops and short-covering, traders said. (Graphic: link.reuters.com/ruq87r )
"Gold has continued its uptrend since it has broken above its down trendline from the January high, and it has gotten through the 20-day moving average which was held for several days," said Rick Bensignor, chief market analyst at investment bank Dahlman Rose.
Spot gold rose 0.9 percent to $1,362.90 an ounce by 2:58 p.m. EST (1958 GMT).
U.S. gold futures for April delivery settled up $15.90, or 1.2 percent, an ounce at $1,364.10. Trading volume was about 40 percent below its 30-day average, in line with weaker turnover in the last several sessions.
Afshin Nabavi, head of trading at Geneva's MKS Finance, cited short-covering and technical buying, which lifted April gold futures above last Friday's highs.
"Specs went short off the China headlines earlier. This is all futures-driven, as stops are driven through the post non-farm payrolls spike of $1,361, followed by the 100-day moving average around $1,362," Nabavi said.
Simon Weeks, head of precious metals at the Bank of Nova Scotia, said consumer demand from China, the world's second-biggest bullion consumer, could rise after the end of the Lunar New Year holidays this week.
Oil and copper prices recovered losses made after China's rate hike. The dollar fell sharply against the euro, adding further upward pressure to gold. <FRX/> <O/R>
Also supporting sentiment toward gold, investment in exchange-traded funds showed signs of stabilization, with holdings in the SPDR Gold Trust up 1 ton in the past week at 1,228.864 tons. <GOL/SPDR>
In January, the fund registered its largest monthly outflow of metal since April 2008 as investors favored equities and industrial commodities over perceived safe havens.
"The SPDR holdings have been nearly unchanged, and profit-taking from investors has perhaps stopped for the moment," said LBBW commodities strategist Thorsten Proettel.
Gold prices withstood intense pressure last week, posting their first weekly rise this year, despite signs of an improving global economy and that the euro zone debt crisis had not worsened.
Silver rallied 3.2 percent on Tuesday to $30.30 an ounce.
Silver has gained 8 percent this month to within a dollar of a 31-year peak of $31.22 an ounce seen in early January. It is so high the Austrian Mint said it had canceled production of five- and ten-euro silver coins indefinitely.
Among other precious metals, platinum and palladium hit multi-year highs. Both have seen inflows into some of the major ETFs in the past week, such as ETF Securities' U.S.-listed products, indicating investor appetite.
Spot platinum hit its highest since July 2008 at $1,860.24 an ounce, and was last up 0.9 percent at $1,855. Palladium rose to a 10-year high at $836.50 and was last up 2 percent at $831.97 an ounce.