Gold rose more than 1 percent on Tuesday to $1,367.60 an ounce as traders covering short positions in the New York futures market pushed spot prices through key resistance at the metal's 100-day moving average.
The metal unexpectedly made up the ground it lost earlier after a rise in Chinese benchmark interest rates pressured commodities, as the move was seen potentially curbing demand for raw materials in China's charging economy.
Spot gold was bid at $1,366.54 an ounce at 1641 GMT, against $1,350.46 late in New York on Monday. U.S. gold futures for April delivery rose $19.30 an ounce to $1,367.50.
GCJ1 (The gold futures contract for April) has broken Friday's highs, said Afshin Nabavi, head of trading at Geneva's MKS Finance.
He attributed the move to short covering: 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.
The gold price came under intense pressure last week after more signs emerged that global growth continues to improve and that the euro zone debt crisis has not worsened, which eroded some investor appetite for the metal.
Its early rebound on Tuesday was short-lived after China's central bank raised interest rates by a quarter point to 6.06 percent, its second increase in just over a month as it stepped up its fight against stubbornly high inflation.
A kneejerk reaction for commodities is obviously going to be lower on higher Chinese interest rates, said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
(But) demand for gold is still strong, he added. In the short term people are expecting China to come back from their New Year holidays (with) pent-up demand for gold.
Gold buyers in China, the world's second-biggest bullion consumer, have been absent from the market this week for the Lunar New Year holidays, but will return on Wednesday.
The premium on the Shanghai Gold Exchange was still $8 over the global price when they went away, whereas last year when they went on holiday it was flat if not at a small discount to the international markets, so there is still demand out there, Weeks said.
Oil and copper prices recovered losses made after China's interest rate increase. The dollar index slipped 0.4 percent, meanwhile, adding further upward pressure to gold.
U.S. stocks were little changed, with investors focused on corporate earnings and the impact an interest rate hike in China will have on global economic demand. .N
Also supporting sentiment toward gold, investment in exchange-traded funds showed signs of stabilization, with holdings of metal in the SPDR Gold Trust up by 1 ton in the past week to 1,228.864 tons.
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.
Among other precious metals, platinum and palladium rallied to multi-year highs in gold's wake. 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 level since July 2008 at $1,860.24 an ounce and was last up 1 percent at $1,856 an ounce. Palladium reached a fresh ten-year high at $836, and was last up 2.3 percent at $834.22 an ounce.
Silver was last up 2.5 percent at $30.09.
The price is up nearly 7 percent this month so far and is within a few dollars of 31-year highs seen in early January. It is so high the Austrian Mint said it had canceled production of five- and ten-euro silver coins indefinitely.