Gold rallied to hit a new 25-year peak on Monday as fund managers shifted more money into the metal on bullishness for 2006 and uncertainty about economic growth and the dollar, analysts said.

Trading was volatile in Europe, with some speculative profit-taking emerging earlier, but a late flurry of fund buying in New York pushed bullion to a new high to reach above $550 an ounce for the first time since January 1981.

Spot gold was last quoted at $548.50/549.25, compared with its intraday peak at $550.75 touched late in New York and against Friday's late quote of $538.30/9.00.

For more precious metal prices, click here.

The day's rally in gold — an asset seen as an alternative to more common investments — was unusual in that it coincided with the Dow Jones industrial average's first rise above 11,000 in 4-1/2 years, and with a firmer dollar in the afternoon.

Fairly steady fund buying in gold, mixed with some dealer buying, helped power the market to its latest in a series of recent multiyear highs, said Andy Montano, a director at ScotiaMocatta in Toronto.

"It seemed to be more a sentiment move than anything else and there didn't seem to be any significant interest in selling, and so the buying just kept taking it upwards and upwards," he said.

"There seems to be some pretty good economic strength in the markets in general and that is giving rise, I would imagine, to some concerns over inflation."

At its peak, gold was up more than 5 percent from a week ago, 18 percent from some two months earlier and 30 percent from a year ago. The price has more than doubled in five years.

Market talk that China and other central banks in Asia — which jointly have $2.6 trillion in foreign currency assets — might be looking to diversify some of their reserves into gold had underpinned sentiment since late last year.

China said on Thursday it planned to explore new ways of using the country's foreign exchange reserves and broadening their investment scope. It has 600 tonnes of gold in its reserves, accounting for only 1.2 percent of the total.

Dealers said worries about rising energy costs and general security concerns in the Middle East had prompted funds and investors to diversify away from equities, currencies and bonds.

"The market overall does look strong," said Frank Aburto, a broker at Rosenthal-Collins Group in New York. "I don't think it is going to collapse. Setbacks are an excuse to go into the market and go long, which is what the funds are doing at this point."


Analysts said speculative positions in the U.S. market were high but had been stable for the past four to five weeks and there was no pressure on market players to liquidate.

Stronger gold prices elevated mining shares in Australia, the world's second-largest bullion producer after South Africa, but physical buying fell in many parts of Asia.

Newcrest Mining Ltd., Australia's biggest gold miner, rose as much as 5 percent and Lihir Gold Ltd. gained more than 6 percent.

Numis Securities Limited lifted its 2006 forecast to $500 an ounce from $475 previously, in response to rapid rise in prices, buying by funds, inflation fears, falling mine output and rising production costs.

Oil climbed to a three-month high, boosting gold's allure as an inflation-hedge, before being dragged lower in late trade. The dollar rebounded after last week's sell-off, as investors mull the future course of U.S. interest rates.

Investors in Japan were absent due to a holiday but dealers and analysts noted fund buying from elsewhere in the region.

In other precious metals, platinum crossed a psychologically important level of $1,000 an ounce. Spot was at $1,001/$1,005 from $993/$998 late on Friday.

Palladium rose to $275/$280 an ounce from $267/$271. Silver was up at $9.20/9.23 an ounce, vs. New York's $9.09/$9.12.