SINGAPORE, Dec 6 (REUTERS): Spot gold prices soared above $510 an ounce Tuesday, their highest since January 1980, buoyed by continued fund buying on inflation worries and increased diversification into commodities, dealers said.
However, profit taking and selling interest above $510 pushed the bullion market back to the previous day's closing level.
Spot gold briefly hit $510.30/511.25 an ounce before easing to $507.90/508.70 by 0708 GMT, down from $508.40/509.20 last quoted in New York Monday. In January 1980, gold hit a record $850.
"We saw some good Japanese buying, mainly related to Tokyo futures," said a bullion dealer in Hong Kong.
He said Japanese investors were doing arbitrage-selling Tokyo Commodity Exchange (TOCOM) gold futures and at the same time buying spot bullion.
In the short term, gold was expected to trade between $505 and $512, with major support seen between $502 and $498, he said, adding that if gold were to exceed $512, it could surge to $520- $530.
"The market is very much driven by funds and investors," said a bullion dealer in Singapore.
"I don't think it's dependent on the physical side anymore because the spread between physical gold and paper gold in Singapore is apparently quite compressed. So there is no big physical buying going on."
Gold, used in jewellery and as an investment, spent much of the period from 1997 to 2001 below $300, before embarking on a bull run that has seen its price nearly double.
Despite a stronger dollar, dealers said inflation fears have played a key role in gold's rise, especially over the past year. Robust investment and jewellery demand as well as a stable level of global mine production have been supportive.
TOCOM gold futures extended their gains Tuesday to set a new 15-year high on the yen's weaker tone against the dollar, with the benchmark October 2006 future ending up 13 yen ($0.107) per gramme at 2,002 yen.