The December 2006 contract on the Tokyo Commodity Exchange finished up 45 yen or 2.3 percent at 1,985 yen per gram after trading between 1,974 and 1,988, which was the highest for TOCOM's benchmark gold since December 14.
The key gold contract has recovered nearly half of the losses it suffered in a plunge from an 18-year high of 2,155 yen marked on December 12 to a low of 1,830 yen on December 16.
"The sharp and rapid recovery in prices has reinforced a view among market participants that gold's long-term uptrend will remain intact," a Tokyo broker said.
TOCOM gold accelerated a rally in the second half of this year, as Japanese investors, frustrated by near-zero interest rates at home, shifted money into the metal.
The yen's declining trend against the dollar also strengthened investor interest in TOCOM, as a weaker yen has an effect of raising yen-based gold prices.
The US currency has risen about 15 percent against the yen and the euro this year as the Federal Reserve's repeated interest rate hikes have made dollar investments attractive.
Prices of TOCOM's key gold contract have gained 600 yen or 43 percent from this year's low of 1,385 yen marked in January. Turnover of TOCOM gold were 75,516 lots on Thursday, down from Wednesday's 82,015 lots, as operators were reluctant to take fresh positions ahead of the New Year holidays.
TOCOM will hold a half-day session on Friday, the last trading day of the year. The market will be closed next on Monday and Tuesday.
Spot gold was quoted at $515.75/6.75 an ounce, up from $513.70/4.40 last quoted in New York on Wednesday.
Bullion rose to a two-week peak after breaking above resistance at $510 an ounce on Wednesday.
It has climbed by 5.5 percent since falling to a one-month low at $489 last week.
On December 12, bullion surged to $540.90, it's highest in almost 25 years, amid worries about rising energy costs and geopolitics. In the currency market, the dollar ticked up to a two-week high at 117.99 yen on Thursday from around 117.90 yen in late US trade bolstered by an above-consensus gauge of US consumer sentiment.
In the platinum market, TOCOM's benchmark December 2006 contract closed up 64 yen per gram at 3,699, taking a cue from a weaker yen and a rally in New York.
Spot platinum was quoted at $971/976 an ounce, against $967/971 in late New York.