LONDON, Dec 2: Gold spiked to a 23-year high and silver rose to its highest for 18 years on Friday in a volatile bull market driven by fund managers, who are seen pushing the market higher, dealers said.

Gold, used as jewellery and investment, has been rising as investors diversify their portfolios on worries about economic growth and inflation. Fund buying is continuing despite fears of year-end liquidation.

There is a lot of money that just buys it because there is an uptrend, said Robin Edwards, president of UK-based Sabre Fund Management.

The investment money sees an environment where gold is an interesting alternative investment. Diversification is the key these days. The fundamentals are very good on gold.

Spot gold rose to as high as $506.50 an ounce, its highest since February 1983, but eased to $502.60/503.40.

Gold had 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.

The market sentiment has been bullish and experts predict further rises in prices. Brokerage firm UBS raised its average per-ounce gold price forecast for 2005 to $441 from $434, for 2006 to $520 from $455, and for 2007 to $500 from $435.

Certainly commodities seem to be the flavour of the month at the moment and the funds have continued to buy, said Simon Weeks, director of precious metals at ScotiaMocatta.

Gold gained in other currencies too and rose to a record high in euro terms at 432.65 euros. In the British pound, it rose to a 20-year peak of 293.15 sterling.

Gold trading has been volatile since it breached the $500 level for the first time since 1987 this week, falling to a one-week low of $490 on Thursday as investors booked profits.

Jewellery demand fell in Asia at a time when buying picks up ahead of Christmas and the Lunar New Year. Dealers also noted sales of gold bars and ornaments in India, Indonesia, Japan, Hong Kong and Singapore as investors cashed in their holdings.

Platinum group metals also rose and silver hit its highest since 1987 at $8.60 an ounce. Silver later eased to $8.50/8.52, compared with $8.51/8.54 an ounce.—Reuters