Strength in the industrial metals and firmer equity markets also cheered buyers, as U.S. stocks rose at the open and European shares edged higher.
Spot gold rose to a session high of $807.70 an ounce, and was quoted at $805.50/807.50 an ounce at 2:33 p.m., up from $775.50 an ounce in New York late on Tuesday.
In sterling terms it rose to 545.63 pounds, only 1 percent from the high of 550.82 pounds it reached in October.
U.S. gold for February delivery was up $32.20 an ounce at $806.40 on the COMEX division of the New York Mercantile Exchange. It reached a high of $808.70 in earlier trade, its firmest since Dec 1.
Citi analyst David Thurtell said gold's rise had been fuelled by technical factors, as key stops were triggered below $800 an ounce. "There is a little dollar weakness and oil jumped...so that is giving it a hand," he added.
Rising crude prices, which can boost interest in commodities as an asset class and in gold as a hedge against oil-led inflation, have supported the precious metal.
Oil jumped more than 5 percent to over $44 a barrel. Traders are looking ahead to U.S. stocks data later in the session and next week's meeting of oil cartel OPEC, where production cuts will be discussed.
"There is speculation that further OPEC oil production cuts could lift prices," Fairfax analyst John Meyer said.
The dollar slipped to a two-week low against the euro as a tentative U.S. plan to bail out carmakers relieved some risk aversion, which had benefited the U.S. currency. Traders sold the dollar and low-yielding yen as market volatility calmed.
Traders are also eying the equity markets, which provided strong direction to gold on Tuesday. U.S. stocks rose at the open as news of a tentative agreement to provide aid to U.S. automakers calmed investor fears.
European equities also edged higher as gains in miners, led by Rio Tinto after it announced job cuts, outweighed falling bank stocks.
"Equities are going up, and that's helping gold," Calyon analyst Robin Bhar said.
PLATINUM FIRMS
Platinum and palladium also strengthened a touch as the market awaited fresh news on a potential rescue plan for ailing U.S. automakers, which could improve the demand outlook for the metals used in catalytic converters.
Traders are eying a $15 billion U.S. plan to bail out carmakers, whose problems have knocked the metal in recent months.
The U.S. House of Representatives could vote as early as Wednesday on a plan to restructure carmakers but the project could still be blocked by the Senate, officials said.
Lawmakers fear that a collapse of any of the Big Three automakers -- General Motors , Chrysler or Ford -- could deepen the U.S. recession.
But while talk of the bailout has helped arrest the metal's sharp slide -- platinum has shed more than 65 percent of its value since its March peak -- it may not push it higher.
"Given the slowdown in demand for platinum group metals, this news is only likely to provide a temporary boost to prices," Barclays Capital said in a note.
Spot platinum was quoted at $820.50/840.50 an ounce, against $803.50, while sister metal palladium was up at $176.50/184.50 an ounce against $174.
Among other precious metals, spot silver rose to $10.14/10.22 an ounce from $9.79.
(Editing by Sue Thomas)
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