China raised its interest rates earlier this week as it tries to cool its fast-growing economy. "The reality of accelerating inflation in China is indeed positive for gold," Edel Tully, an analyst at investment bank UBS, said.
"Current inflationary/deflationary uncertainty is being exacerbated by rising energy prices," Marcus Grubb, managing director of investment at the World Gold Council, added. "Brent crude breached $120 for the first time since August 2008 and WTI crude is fast approaching $110, as a result of the events in the Middle East and North Africa."
Brent edged a further eight cents higher to $122.30 a barrel at 5pm on Wednesday.
Mr Grubb also cited renewed concerns about global food inflation, particularly in emerging markets, following crop reports in the US which saw stocks of corn and soybeans unexpectedly revised down in an already tight supply environment. Prices of basic foodstuff are expected to rise further.
Gold rose on Tuesday after credit rating agency Moody's downgraded its rating on Portuguese debt, increasing default fears. Silver prices have been particularly strong over the past 18 months and have more than doubled since August last year.
On Wednesday, the gold/silver ratio, which is the number of ounces of silver it takes to buy on ounce of gold, fell to 36.7, the lowest level since 1983.
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