WELLINGTON (Dow Jones)--After another stellar rally overnight, gold edged lower in Asian trading Wednesday, but the downside remained limited amid renewed fears about the slowing pace of the global economic recovery and underlying concerns about the European debt woes. Spot gold, which touched yet another high of $1,661.64 a troy ounce Tuesday, saw some profit taking early in the session but the overall outlook for the yellow metal remains bullish, traders said. Around 0500 GMT, spot gold was trading at $1,657.90/oz, down $2.20 from its previous close. "Think about all the problems out there... Probably gold is going to go higher because of issues that have kept it going as long as it has," said an Adelaide-based senior official of fund house. While Moody's Investors Service affirmed the U.S. government's credit rating despite saying more needs to be done to curb the country's rising debt levels, Spanish and Italian borrowing costs hit new euro-era highs on Tuesday, making it clear the European sovereign-debt crisis is getting worse. Gold has rallied in the past few months touching new highs nearly every week as investors flocked to park their money in the yellow metal, considered safer during economic uncertainty while other assets remain vulnerable to value erosion. The uncertainty has led to gold purchases by central banks. The central banks of Greece and Korea bought gold in June and July, diversifying their forex portfolio away from the dollar. "All these things are adding up to a bullish picture for gold," said Darren Heathcote, head of trading at Investec Bank. "It is definitely conceivable" that gold could touch $1,700/oz "at some point in the next few months." Traders said demand from exchange traded funds have risen in the past few weeks while physical demand in India, the biggest consumer of the metal, is expected to pick up later this month ahead of the festive and wedding season that starts in September. Preliminary data for July on Gold ETFs show a large net inflow of 86 tons, the highest since May 2011 while inflow in silver was higher at 569 tons, the highest since November 2010, Barclays Capital said in a note. Around 0500 GMT, silver was at $40.66/oz, down 5 cents, while platinum was at $1,792.50/oz, up $1.70 and palladium at $824.75/oz, up $1.67 from its previous close. While gold has mostly been in the limelight for touching new records, silver has been the "best performing commodity" in July, according to Michael McGlone, senior director of commodities at Standard & Poor's. -By Arpan Mukherjee, Dow Jones Newswires; 64-4-471-5990; arpan.mukherjee@dowjones.com

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