Gold rose to as high as $505 an ounce in Asia on Friday, its highest level since February 1983, and looked likely to rise further as fund buying resurfaced despite fears of year-end liquidation.
Gold, used as jewellery and investment, has been on the rise as investors diversify their portfolios on worries about geopolitical tensions, such as the threat of terrorist attacks, and inflation.
Spot gold was quoted at $503.60/504.20 an ounce in late trade, up slightly from $503.00/503.75 last quoted in New York on Thursday. Some dealers expected gold to trade in a wide range of between $490 and $510 for the rest of the day.
Gold climbed to $509.20 an ounce in February 1983. Anything above that level will bring the metal to its highest since January 1980, when it hit a record high of $850 an ounce.
"Where do we go from here? I guess if we stay above $500, we may well be targeting $510," said Darren Heathcote, head of trading at N M Rothschild in Sydney.
"The funds are still happily buying, they are still happily holding gold at the moment. But I suspect the longs are still very overbought ... susceptible to a downturn," he said.
The latest weekly report released by the Commodity Futures Trading Commission, a U.S. regulator, showed that speculative net long position in New York's COMEX gold were close to record high levels.
Friday's gains in the spot market were also driven by Tokyo futures, where benchmark October contract on the Tokyo Commodity Exchange rose by the daily 50-yen limit to end at a 15-year high of 1,974 yen ($16.47) per gram as a tumbling yen sparked buying.
The yen's fall beyond the 120 yen level against the dollar lent support to Tokyo gold futures because a weaker Japanese currency usually has the effect of raising the value of yen-based commodities prices.
"We've seen downward corrections this week, but we've also confirmed that prices are very solid," said Shuji Sugata, assistant manager of Mitsubishi Corp. Futures Ltd.
"Gold is unlikely to face major liquidation that would alter the current bullish sentiment."
Gold trading has been volatile since the metal breached the $500 level for the first time since 1987 this week, falling to a one-week low of around $490 on Thursday as investors booked profits.
"There are some people who are still on the sale side and they are happy to lock in profits at around $510 level. I would not be surprised if we have a dip below $500 today," said a dealer in Singapore.
"It all depends on how the funds want to play it. If we have a good close tonight in New York, you might see more vested interest coming in next week," he said.
The World Gold Council has said global demand for gold in the third quarter totalled 838 tonnes, a rise of 7 percent from the same quarter a year earlier, with surging investment demand helping to offset a slowdown in the jewellery sector.
Platinum group metals also rose and silver hit its highest since 1987 at $8.52 an ounce.
Platinum rose to $996/1,000 an ounce from $987/992 late in New York. Palladium rose to $266/270 an ounce from $261/264.