Tokyo gold futures rallied to a fresh 20-year high on Monday as strength in the dollar-based spot price prompted active buying, but gains were slowed by the yen's rise against the dollar.
Geopolitical concerns over Iran's nuclear programme and inflation fears prompted by high oil costs were also drawing strong buying from short-term investment funds and speculators.
By the close at 0630 GMT, Tokyo Commodity Exchange gold futures were slightly off the 20-year high hit earlier, weighed down by the higher yen, but traders were bullish about the outlook due to its healthy fundamentals and technicals.
A higher yen effectively lowers the value of yen-based gold.
"It's true that a stronger yen is capping prices, but the market is focusing more on the overall strength in spot gold," said Shuji Sugata, assistant manager at Mitsubishi Corp Futures and Securities Ltd.
"Money from funds is shifting to places that are rising sharply, such as copper, aluminium and gold," Sugata said. Benchmark TOCOM gold futures hit 2,491 yen per gram at the opening (0000 GMT), which was the highest level for a benchmark contract since September 1985. The key most-distant April 2007 TOCOM gold closed at 2,489 yen, up 55 yen or 2.26 percent from 2,434 yen last Tuesday.
Other contracts closed up 53 to 57 yen.
Tokyo prices were also catching up with gains in New York and London during Japanese holidays from Wednesday to Friday last week. Technical-based investment funds were keen to buy gold based on its bullish prices.
April TOCOM gold was bullish on charts, nearly 4 percent above the 7-day moving average (MA) of 2,402 yen and 4.5 percent above the 14-day MA of 2,384 yen.
Spot gold briefly hit a new 25-year high of $684.70 an ounce in Asian hours on Monday. It has appreciated about 18 percent in the past month.
As of 0639 GMT, spot gold was trading at $684.10/$685.10 per ounce, up from $682.10/683.10 in late New York trade on Friday.
Gold had stood at $655.50 around the TOCOM close on Tuesday of last week.
"Spot gold's rally is a bit rapid since the break through $600, but the market is watching $700 as the next key level. Sentiment is bullish," Sugata said.
The spot gold price soared to an all-time high of $850 in 1980.
On Friday, gold futures sprinted up to settle just below a new 25-year high in New York, as bullish investors bolstered positions after a weaker-than-expected US jobs report for April.
This week, currency and metals markets are focusing on Wednesday's Federal Reserve meeting.
The Fed is widely expected to raise the federal funds rate to 5 percent from 4.75 percent, and the market is watching its post-meeting statement for hints on wrapping up a two-year credit-tightening campaign.
Other TOCOM metals were mixed, but firmness in gold prices lent overall support.
Key April TOCOM silver ended up 2.8 yen or 0.58 percent at 484.5 yen per 10 grams.
Billionaire US investor Warren Buffett of Berkshire Hathaway Inc said he no longer has a holding in silver. Buffett said he had made money owning silver in the past, but "not much".
"I bought too soon and I sold way too soon - all the mistake was mine," said Buffett, Berkshire's chairman and chief executive, declining to say when he sold.
Spot silver hit a 23-year peak of $14.68 an ounce two weeks ago.
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