Gold prices rallied to a record high $1,497.20 an ounce on Monday after Standard & Poor's downgraded its credit outlook for the United States and as investors worried about debt in the euro zone and inflation in China.

S&P said it might cut its long-term rating on the United States within two years, prompting investors to buy gold as a hedge against economic uncertainty. The ratings agency cited a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit.

The U.S. debt situation got a reality check this morning from the move by S&P, said John Kilduff, a partner at Again Capital in New York.

Only precious metals will be seen as attractive in the aftermath of the outlook downgrade. The overall economic outlook becomes more opaque with this; equities and energies will be very much under pressure now, Kilduff said.

Spot gold rose 0.8 percent at $1,495.60 an ounce by 2:00 p.m. EDT, set for a gain for the fourth consecutive session.

U.S. gold futures for June delivery rose $10.60 an ounce to $1,496.60, with volume already topping a busy 190,000 lots, preliminary Reuters data showed.

Gold rose as the Reuters/Jefferies CRB index <.CRB> fell 1 percent, led by a more than 2 percent drop in U.S. crude futures. Global equity markets <.MIWD00000PUS> also tumbled.

Gold gained support from talk that Greece may be forced to restructure its debt and on uncertainty over a bailout for Portugal.

There is ongoing concern that the (European) debt problems haven't been fixed. The negative outlook just undermines the role of the dollar as a safe-haven currency, said Leo Larkin, metals equity analyst of Standard & Poor's.

Larkin, whose work is separate from that of S&P's sovereign rating unit, said he expects gold to hit a record $1,600 an ounce by year-end on inflation worries and low real interest rates.

The dollar remained broadly higher as mounting concerns about Greece's fiscal conditions more than offset S&P's downgrade of U.S. outlook.

Gold remained far below its all-time inflation-adjusted high, estimated at almost $2,500 an ounce, set in 1980, an era of Cold War tension, oil shocks and hyperinflation.

CHINA MOVE STOKES INFLATION

Gold also got a boost from concerns about inflation in emerging markets. China raised banks' required reserves on Sunday for the fourth time this year, extending the fight against stubbornly high inflation.

It certainly looks as though there are signs that inflation is uncomfortably high within the Asia region, said RBS analyst Daniel Major. Gold has a role as a perceived inflation hedge.

Among other precious metals, silver gained 0.3 percent to $43.12 an ounce, having earlier hit a 31-year high at $43.51 an ounce. Silver has been the best-performing precious metal so far this year, up 40 percent since January.

Platinum eased 0.3 percent at $1,777.99 an ounce, while palladium dropped 3.3 percent to $735.22.

(Additional reporting by Wanfeng Zhou in New York and Jan Harvey in London; Editing by David Gregorio)

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