Gold prices topped $520 an ounce for the first time since April 1981 on Friday, pushed up by fund buying and interest in Tokyo futures before some investors opted to take profits, paring some of the gains.
With gold's tight supply, healthy global demand, worries about inflation and growing fund interest in precious metals and other commodities, speculative buying has defied analyst warnings that the bullion market was overbought.
Spot gold rose to $520.40/521.20 an ounce, against $519.50/520.30 last quoted in New York on Thursday. Gold hit a 24-1/2-year high of $522.70. "There's some profit-taking now, but look at where we are," said Darren Heathcote, head of trading at N M Rothschild in Sydney.
"It's broken $520, the target we had yesterday looks like $525 is the next target." A rise in oil prices, rekindling inflation concerns, and aggressive Japanese buying supported gold, which is used in jewellery and as an investment.
"It's dizzy high, and we're looking at a very overbought market," Heathcote said. "We're looking for a correction. It has to come at some point. However, given where oil is, it may well give some support on the downside."
On Friday, US crude extended its rally to a 5-week high above $61 a barrel and natural gas pushed deeper into record territory as a chill gripped the US Northeast and Midwest, driving up heating fuel demand.
Analysts have said gold remained vulnerable to a fund sell-off due to heavy long positions on the New York Mercantile Exchange's Comex division and the Tokyo Commodity Exchange. In Tokyo, The benchmark TOCOM October contract rose 45 yen ($0.37) per gram to 2,105 yen, the highest for TOCOM's benchmark gold since March 1990 when prices surged to 2,124 yen.
Retail investors in Japan are becoming increasingly bullish about the gold price outlook due to the metal's positive fundamentals, its role as a hedge against inflation and robust investment demand for commodities, brokers said.
Buying of TOCOM gold was also fuelled by the view that the yen could weaken further against the dollar due to a widening gap in Japanese interest rates, and US they said. "It's hard to take a short position, given the strong fundamentals," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.
"The market's overbought but still very bullish." Kageyama said open interest in TOCOM gold futures soared by around 100,000 lots to more than 500,000 lots in the past two weeks. A contract of TOCOM gold futures is for 1,000 gram.
For the pace of TOCOM's gold open interest increase, he said: "I've not seen this in the past. I'm pretty sure there were some investment funds behind this increase." "Now it's meaningless to set the next upside target.
The market has been up, clearing all the targets so far." The price of gold has gained about 20 percent this year and has doubled in about 5 years. In November, Russia, Argentina and South Africa expressed interest in increasing their gold holdings, even though European central banks have sold over 100 tonnes since September.
Other precious metals were mixed. Platinum eased to $996/1,000 an ounce from $998/1,003 late in New York. It rose as high as $1,003 against on Monday's peak of $1,006, the highest since March 1980.
Sister metal palladium was at $286/290 an ounce, the highest since April 2004, versus $278/282.
Silver was at $8.93/8.96 against $8.88/8.91 late in New York. Silver hit $8.99, it's highest since May 1987.
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