"The major reason is undoubtedly producer hedging. North American producers were very active at $295 to $300," Paul Walker, director at the precious metals consultancy, told Reuters in a recent interview.

"In the next few months, you will see that is a price trigger for hedging, definitely," he said.

Gold bullion was trading around $293 per ounce in afternoon Tokyo.

Compared with South African mining companies, North American gold producers have smaller production costs, with many of them having cash cost below $200 an ounce, Walker said.

Considering the potential threat from producer hedging, it will be difficult for gold to break through the key $300 level, unless uncertainties in world financial markets cause a major crisis in the Western banking system, hesaid.

Another factor inhibiting gold's upward momentum is central sales, Walker said.

"We are fairly sure that there has been some selling (from central banks). I think flows of gold are coming onto the market now," he said.

He declined to comment on which central banks were selling gold, saying the banks were expected to make announcements, probably next year.

Net gold sales by the official sector, including central banks, are expected to grow to 260 tonnes in the second half of 1998 after net sales of 88 tonnes in the first half, he said.

The amount will be smaller than last year's net sales of 406 tonnes by the official sector, he said.

In the past six weeks, gold prices have recovered from a 19 year low of around $270.75 an ounce, against the backdrop of global financial market turmoil. But Walker attributed the rebound mainly to fund short-covering and physical buying, and not to "flight to quality" from the equity market.

"Maybe 15 to 20 years ago, if I was worried about the financialsystem, I would go to gold because it is a real security," Walker said. "But people have become more comfortable with the idea of holding paper assets because of the whole development of financial instruments which make them able to protect the risks."

In addition, he said, there are coordinated efforts between governments to protect the world economy from a major crisis.

"I think there are less systemic risks. What's the chance of the major system threat? I don't think it's high," Walker said.

Even in Japan, where people have been experiencing the worst banking crisis in their post-war history, the government's intervention was lowering systemic risk, he said.

"Why have people in Japan bought gold in the last three weeks? That's not because people are worried about the systemic risks. It's purely price-driven," he said.

Yen-based gold prices have fallen by 15 to 20 percent from this month's peak due to the yen's sudden rise against the dollar, which triggered bargain-hunting by Japanese investors,he said.