Benchmark Tokyo Commodity Exchange gold futures rose as high as 1,958 yen the highest since December 14. Active buying emerged after the contract opened above last week's peak of 1,933 yen and climbed past the 30-day moving average of 1,939 yen.
The key gold contract has recovered 7 percent from a low of 1,830 yen on December 16. It has also recouped about 40 percent of the losses it suffered in a plunge from an 18-year high of 2,155 on December 12 to the low.
"Bargain-hunting intensified after dollar-based spot gold rallied above $510. The market was also convinced by recent recoveries in yen-based gold," said Tatsuo Kageyama, analyst at Kanetsu Asset Management. "Technical sentiment is stronger after seeing it recover more than one-third from the low," he said.
The underlying trend was bullish, also backed by fundamentals, but profit-taking demand was also strong after the market witnessed TOCOM gold tumble more than 15 percent from the 18-year high less than two weeks ago, traders said. Late rounds of profit taking pushed down TOCOM gold from highs, as some investors were nervous about holding large buy positions ahead of the year-end holidays when liquidity in the gold market is generally low. The key December 2006 gold contract closed at 1,940 yen, up 10 yen or 0.52 percent from Tuesday's close. Its session low was 1,938 yen. Other contracts closed up by four to 16 yen.
"The market will be careful about selling gold aggressively, but at the same time the market will also be cautious about chasing prices too aggressively especially after experiencing that plunge," Kageyama said.
Dollar-denominated gold broke through key resistance of $510 per ounce on Wednesday as fund buying intensified.
Spot gold was trading at $509.50/510.25, up from $507.50/508.30 late in New York on Tuesday, when gold rose nearly $5.00 on fund buying.
Spot gold climbed as high as $510.50 in Asia.
TOCOM silver rallied, tracing gains in gold, while platinum futures closed mostly higher. Benchmark TOCOM platinum December futures closed at 3,635 yen per gram, up 10 yen or 0.28 percent from Tuesday.
They had moved in a range of 3,630 to 3,654 yen. Other contracts closed three-yen lower to 11 yen higher.