LONDON, Dec 30: Gold served up glittering returns in 2005 as many funds and investors included it in their portfolios for the first time in years and analysts saw no sign of the rally fizzling out in 2006.

Gold surged by a quarter this year when it hit its highest level in nearly 25 years of $540.90 an ounce in December, after spending the first eight months in a $410-$460 range.

Generally investors have done very well in gold. Money goes to performance, so as the funds performed well, more investors put money into those funds, said Jeremy East, global head of precious metals at Commerzbank.

The metal’s buoyant tone turned out to be the beginning of a roaring rally in early November, with gold sprinting up by 19 per cent in just one month and staying above the psychological level of $500 for most of that time.

It traded at around $513 an ounce on Friday, but leading investment banks and research firms said gold had potential to rise beyond recent highs in 2006.

A Reuters poll of 30 analysts in July predicted a median average gold price of $433.25 per troy ounce in 2005, below its actual average of $444.75.

Strong fundamentals also aided the metal, with physical demand rising in key markets and supply seen stagnating in the longer term.

Gold output in South Africa, the world’s top producer, fell 15.4 per cent in the third quarter to 72.4 tons from the same period last year due to restructuring and shaft closures.

If gold were moving because of recent trends in the dollar or interest rates, then there would be no guaranteeing the longevity of the uptrend, said J.P. Morgan in a recent report.

Gold’s tight inverse relationship with the dollar weakened in the last quarter of 2005, when it extended gains despite a rise in the dollar.

Gold’s spike to multi-decade highs in December was fuelled by Japanese investors who showed a keen interest in the market following a drop in their local currency. To curb volatility, the Tokyo Commodity Exchange imposed trading margins on futures.

People also put money into exchange traded funds (ETFs), which give investors a share of a bar of gold and are traded on stock exchanges including London and New York, making the market more widely accessible.—Reuters