After quiet trading early in Asia, spot silver surged 3 percent to $16.73 an ounce, its highest since June2015. It pared some gains to trade up 2.5 percent at $16.628 by 0740 GMT.
The surge boosted gold to a session high of $1,246.40 an ounce, up more than 1 percent, after it dipped 0.3 percent earlier in the day in choppy trading.
"Gold is following silver higher," said Ronald Leung, chief dealer, Lee Cheong Gold Dealers, Hong Kong. "One reason is that the dollar is weakening. Another reason is that there is heavy buying in silver in Shanghai. And that has triggered buying in gold as well," Leung said.
The world's top gold consumer China launched a yuan-denominated gold benchmark on Tuesday, as the country took an ambitious step to exert more control over the pricing of the metal and boost its influence in the global bullion market.
The benchmark is a culmination of efforts by China over the last few years to reform its domestic gold market in a bid to have a bigger say in the bullion industry, long dominated by London where the global spot benchmark price is currently set.
As the world's top producer, importer and consumer of gold, China has baulked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold.
The new benchmark may not be an immediate threat to London, but industry players say over time China could set the price of the metal, especially if the yuan become fully convertible.
The Chinese benchmark price, derived from a 1 kg-contract traded by 18 participants on the Shanghai Gold Exchange (SGE), was set at 256.92 yuan ($39.69) per gram on Tuesday.
Gold imports into India sank by 80.48 per cent to US$973 million in March from US$4.98 billion during the corresponding month of last year, data released on Monday showed.
Weak prices of the yellow metal in both global and domestic markets, coupled with the nationwide jewellers’ strike hurt gold demand last month.
Gold imports in March slumped to 18 tonnes from 125 tonnes in the same month of last year, according to provisional data provided by a Finance Ministry official.
Indian jewellers went on an indefinite strike from March to protest the proposed imposition of excise duty on gold jewellery.
Reference: Reuters, IIFL