Gold settled at its loftiest level since mid-April on Tuesday as bets that record-low interest rates will persist buoyed stocks.
Expectations that interest rates will remain at record lows for some time yet and upbeat Chinese data lifted U.S., European and Asian stocks on Tuesday, traders said. Low interest rates tend to favor non-yielding bullion.
"Lower interest rates are for sure a supportive factor for gold, and if that idea spreads in the market, it might trigger investor invest there as well," Heraeus trader Alexander Zumpfe said. "(I) could imagine that ETF buying we already saw over the last couple of days is (also) delivering some support."
for August delivery ended the trading session $4.60 higher at $1,326.60 an ounce, its best settlement price since April 14.
Spot gold, meanwhile, hit a three-month high at $1,332.10 an ounce, before easing to $1,327 an ounce.
The world's largest gold exchange-traded fund, New York's SPDR Gold Shares, reported a 5.7 ton inflow on Monday, the biggest one-day change it has reported in its holdings since March 10.
Chart: Precious Metals
Monday's surge has taken the fund's holdings to the highest since late April at 790.7 tons, after they fell to their lowest since late 2008 in May at 776.9 tons.
"Gold's strength over the past 24 hours could partly be explained by chunky ETF buying yesterday," Swiss bank UBS said in a note on Tuesday. "The significant change in ETF flows this year compared to last year is a key factor that is helping gold—that the aggressive ETF selling of 2013 has not made a comeback has provided ongoing support."
In addition, data from the Commodity Futures Trading Commission showed on Friday that hedge funds and money managers increased their bullish bets in gold futures and options to their highest since March after last week's strong rally in bullion prices.
Tensions in Ukraine and the Middle East also supported gold, analysts said.
Russian President Vladimir Putin said on Tuesday he and European Union states had tried unsuccessfully to persuade Kiev to extend a ceasefire in east Ukraine, and the Ukrainian president had veered off the road to peace.
In the physical markets, however, buyers were put off by the recent price increase. In top consumer China, local prices fell to a discount of about $1 an ounce to global prices on Tuesday from being on par in the previous session, in a sign of weak demand.
—By Reuters with CNBC