LONDON, Dec 7: Heavy fund buying drove gold prices to new 24-year peaks in Europe on Wednesday, but analysts saw the possibility of a sharp correction. The metal also touched new peaks in other currencies, while silver tracked gold and made strong gains, dealers said.

The general feeling of insecurity has been pushing many people to re-allocate parts of their assets into gold and that has been feeding the trend, said Frederic Panizzutti, analyst with Swiss-based MKS Finance.

Spot gold rose to $513.50 an ounce — the highest since April 1981 — and was last quoted at $513.40/514.00 by 1126 GMT, up from New York’s close of $510.50/511.30 on Tuesday.

The price might reach $520 in the short term, but profit-taking could emerge around $515, he said.

Gold has surged as investors switch from traditional financial securities such as shares and bonds into gold and other commodities for bigger returns and on fears about inflation and economic growth.

Gold prices have gained 17 per cent so far this year and doubled in about five years.

Plans by some central banks to increase their reserves have also lifted the metal. Russia, Argentina and South Africa have expressed their intentions to increase their gold holdings, reversing a six-year trend of central bank sales.

Gold rose to a record high in euro terms at 437.89 euros. In terms of the pound, gold rose to 296.32 sterling, the highest in about two decades.

Analysts said the rally had been partly fuelled by Japanese buyers, who had invested heavily in bullion.

With the yen having weakened by 10 per cent since September, gold offers them both a currency hedge and a diversification away from equities and bonds, said Paul Merrick, vice-president of commodities at RBC Capital Markets.

Spot spiked to $8.86 an ounce, its highest in more than 18 years, and was last quoted at $8.75/8.78, against $8.68/8.71 late in New York.

Platinum was at $999/1,003 an ounce, up from $987/990 late in New York. On Monday platinum rose to $1,006, its highest since March 1980.

Palladium was at $271/275, versus $271.50/274.50. —Reuters