LONDON, Jan 9: Gold rallied to hit a new 25-year peak in Europe late on Monday as fund managers shifted more money into the metal on worries about inflation, economic growth and the dollar, analysts said.

The metal traded erratically during the day, climbing in Asian business to its highest since March 27, 1981, before slipping 1.6 per cent in Europe and then rebounding to set a new high.

The market is targeting the key level of $550 an ounce.

“People have had for many years a very negative view of gold and that view is now changing. There is a lot of wealth creation in countries that have an affinity with gold,” said Robin Edwards, president of UK-based Sabre Fund Management.”

Spot gold was quoted at $545.30/546.00 by 1640 GMT, compared with late New York levels on Friday of $538.30/ $539.00. It fell as low as $535.30 on Monday.

At the peak, gold was up more than five percent from a week ago, 18 per cent from some two months earlier and 30 per cent 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.

“The risk of playing in the market from the short side is quite high currently. I still see further gains over the short term, but once it hits $550 then the sentiment could change,” said Yingxi Yu, precious metals analyst at Barclays Capital.—Reuters