Japanese buyers push gold to near 25-year high as investors take fright from weakening yen

Japanese gold fever pushed the price of the precious metal to a near 25-year high, extending the extraordinary rally that valued gold at more than $540 an ounce yesterday.

Worries about the yen weakening further was behind yet more frantic buying in Tokyo, analysts said. Since the US hurricane season, gold has shot up from about $430 an ounce as US and Japanese investors in particular have sought refuge in the metal. Yesterday's rally extended a 10-day surge.

John Reade, the precious metals analyst at UBS Investment Bank, said: " Japanese buyers are key to the move, although I don't think many people understand why they have really bought."

The Tokyo Commodity Exchange said yesterday it would impose an extraordinary trading margin on gold futures from Wednesday to check volatility in the market, prompting the price to slip back in later trade from its $544.50 high. Trading of the most-active gold-futures contract in Tokyo hit their highest levels since February 2003 at 1.92 million contracts last month.

US hedge funds have been active gold buyers, more than tripling their holdings of gold futures since July. Fund managers have been pouring money into gold to diversify portfolios, while other investors have speculated about potential purchases from some of the world's central banks - previously long-time sellers.

Michael Dudas, an analyst at Bear Stearns, said he expected the three-year global commodity price rally to continue into next year. The investment bank raised its average gold price forecasts yesterday for 2006 and 2007 to $510 and $525 an ounce, respectively, from $465 and $475.

Demand for gold coins and bars and bullion-backed shares rose 56 per cent in the third quarter compared with the previous year, the World Gold Council said recently.

Gold's all-time high was the $850, hit in 1980 during a year besieged with fears about inflation, oil shortages and the Cold War. This year's gold rally has lifted the prices of other precious metals. Platinum is at its highest level since March 1980, while silver is fetching more than at any point since 1987.