Tokyo gold futures surged by their daily limit on Monday, with the benchmark contract nearing the 20-year high set last month, as a weak dollar and tensions over Iran's nuclear programme renewed investor interest in bullion.
The April 2007 gold futures contract on the Tokyo Commodity Exchange closed up 58 yen at 2,437 after rising as high as 2,439 - only one yen below the 20-year high for TOCOM's key gold contract marked on April 20.
"A rally in the gold market accelerated as the dollar's weakness added to a bullish market sentiment stemming from concerns about geopolitics and inflation," a Tokyo broker said.
Dollar-based gold prices tend to move in the opposite direction to the US dollar itself because many traders see bullion as a hedge against dollar-based financial assets. A weaker currency also makes dollar-denominated bullion more affordable to non-US buyers.
Although a stronger yen versus the dollar effectively lowers the value of yen-based gold prices, Japanese investors are still eager to buy TOCOM gold as they have a bullish view on bullion, which analysts say could surpass the 1980 peak of $850 an ounce within the next few years on economic and geopolitical uncertainty.
Spot gold was quoted at $659.80/660.80 an ounce at 0630 GMT, up from $651.80/652.80 in late New York. Earlier in the day prices jumped as far as $661.10, exceeding the previous 25-year high of $655.30 reached in New York on Friday.
In the currency market, the dollar hit a seven-month low against the yen on Monday, extending a slide as the Federal Reserve appears set to soon end a two-year run of credit tightening that had widened the US currency's yield advantage.
The dollar fell as low as 113.05 yen on electronic trading platform EBS. By 0620 GMT it was changing hands around 113.10 yen, holding above technical support at 113.
Oil rallied above $72 a barrel on Monday, extending a rebound towards record highs as militants detonated a car bomb in Nigeria and Iran maintained a defiant stance in the face of possible UN sanctions over its nuclear programme.
Iran, which the global nuclear watchdog said last week had ignored calls to abandon its atomic programme, vowed on Sunday to carry on pursuing a nuclear fuel cycle and to strike back if it comes under attack.
Other precious metals futures in Tokyo also soared on Monday, chasing a rally in gold.
The benchmark April 2007 platinum futures closed up 85 yen per gram at 4,263, while April silver finished up by its daily limit of 18 yen per 10 grams at 481.0.
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