Fears about the economic outlook for eastern Europe were further fuelled by the agency downgrading its rating on Ukraine, dealers said.
Spot gold edged up to $963.50/965.50 an ounce at 1416 GMT from $962.45 in New York late on Tuesday. Earlier it touched a session low of $950.50 an ounce.
Quantitative Commodity Research consultant Peter Fertig said positive comments from Federal Reserve head Ben Bernanke on Tuesday coupled with gold’s failure to definitively move above $1,000 an ounce had weighed on prices earlier in the session.
But as stock markets in Europe fell, gold started to strengthen, he said.
“We have this recovery of equity markets and the S&P story on the economic situation again giving gold a push to the upside,” Fertig said.
The head of sovereign ratings at Standard & Poor’s said he expected sovereign ratings downgrades to outpace upgrades this year as global economies battled a deepening recession.
The yen rallied after the news, while world stocks retreated. U.S. stocks are tipped to open lower, as investors worry the sharp run-up in the market on Tuesday would be unsustainable.
The dollar firmed against the euro as investors remained averse to risk.
Gold typically trends in the opposite direction to the U.S. currency, and is often bought as an alternative asset.
However, the two have moved in line in recent weeks as both have benefited from a flight to safety among investors. Gold benefits when risk aversion is high as it is seen as a safe store of value for investors.
Traders will be eyeing January existing home sales data due out in the United States at 1500 GMT for clues on the health of the economy, and further testimony from Bernanke later in the session before the House Financial Services Committee.
However, gold’s gains may be capped by fears the precious metal’s rally to 11-month highs above $1,000 an ounce last week was overdone.
Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust, was 1,028.98 tonnes for a fourth consecutive session on Tuesday, fuelling fears burgeoning demand for gold to back ETFs may have stalled.
“There is no demand for gold other than investment demand into ETFs and into small bars and coins,” Commerzbank analyst Eugen Weinberg said.
Gold buying in India has picked up, however, as prices have retreated from the record highs they hit last week. A further dip below 15,000 rupees per 10 grams may rekindle buying interest, dealers said.
“We are getting calls for the first time after gold dipped below $1,000,” a dealer with a state-run bank in Mumbai said.
India’s buying of the precious metal tailed off as gold soared, leading some to speculate a depression in jewellery demand could prove a major drag on prices, despite the strength of investment buying.
On the supply side, analysts say the recent rise in the gold price is likely only to slow the decline in mine production. Figures released on Tuesday showed output in South Africa fell 13.6 percent in 2008 to its lowest in 86 years.
Among other precious metals, spot silver firmed to $13.85/13.91 an ounce from $13.74. Holdings of the largest silver-backed ETF, the iShares Silver Trust, were also static on Tuesday, albeit at record levels.
Platinum was steady at $1,038.50/1,048.50 an ounce from $1,040.50, while palladium was at $196.50/201.50 an ounce from $198.