Gold crosses $1,500 US

Gold prices pushed further into record territory Tuesday, briefly crossing the $1,500 US an ounce level.

The widely-traded June contract reached $1,500.50, before giving back some of that to close at $1495.10, up $2.20, on the New York Mercantile Exchange.

Traders have been moving into alternative investments as the U.S. dollar continues to weaken and concerns grow both about inflation and European government debt.

The greenback was trading down against the euro following a warning from rating agency Standard and Poor's on Monday that it had cut its outlook on U.S. government debt from stable to negative.

By late afternoon, the euro was up 0.7 per cent at $1.4340 U.S.

The credit warning represented the first time in 70 years that S&P had suggested there was a one-in-three chance of downgrading the U.S. debt from its current triple A rating within the next two years.

The agency expressed concern about the ability of U.S. lawmakers to agree on how to reduce this year's projected $1.5 trillion American deficit.

U.S. Treasury Secretary Timothy Geithner on Tuesday sought to reassure investors that the White House and Republican lawmakers will reach a deal to control the nation's finances, downplaying the S&P's warning.

"We are not going to get behind this problem; we're going to get ahead of it," Geithner said in an interview with CNBC.

Geithner on Sunday said Republican leaders have privately assured the Obama administration that Congress will raise the government's $14.3 trillion US debt limit in time to prevent an unprecedented default.

Adding momentum to the move into gold was the continuing government debt crisis in the euro zone and growing signs of inflation.

Statistics Canada reported that annual inflation spiked by 1.1 percentage points to 3.3 per cent in March, led by rising food and gasoline prices.

That was its biggest single-month leap in inflation since September 2008, on the eve of the recession, and was well above the consensus call for a 0.6 per cent gain.

Price increases in Europe averaged 2.7 per cent in March, up from 2.4 per cent in February.

There were renewed fears Monday that Greece would need to restructure its debt.

The yield on Greece's 10-year bonds spiked nearly a whole percentage point at one stage to 14.59 per cent.

That was the first time it had gone above 14 per cent since the country took up the euro in 2001.

Further debt jitters emerged with the news that Spain had to pay sharply higher interest rates to raise $6.7 billion US in short-term debt.

"Comments continue to emerge from European policymakers but no consensus is yet apparent and markets are driven by speculation," said UBS analyst Chris Walker in a research note.