Hong Kong midday gold ended at (US)$327.00/330.00 per ounce, up from its opening price of $322.50/325.50 and New York's $316.50/319.50 close on Monday.

Gold touched $331.50 in the morning, the highest since October 1997. "It looks like the market is pretty firm. I think we will see $340 in only a matter of time," a trader in Singapore said.

Major players were trying to get gold to stay up above $327, last week's high, and $330 for a push later to $350, another trader said.

OVERSEAS fUND-BUYING SPARKS SHORT-COVERING

"There was fund-buying after the New York close (on Monday) that moved into Australian time" this morning, which sparked heavy short-covering, the trader said.

"Lease rates remain firm," he added. "It seems some big market players want to squeeze the market on lease rates as well," he said.

The one-month gold leasing rate was four to five per cent, which was historically high and made borrowing gold expensive for speculators and those holding hedges.

Gold rose amid bullish sentiment and heavy short-covering from Australia where financial markets reopened after a holiday on Monday.

The latest gains extended last week's rally, which followed a pledge from 15 European central banks not to increase gold sales or lending.

TOCOM GOLD FUTURES

In Tokyo gold futures rose by their daily limit by midday on active short-covering triggered by strong gains in spot bullion. The gains in gold futures caused other precious metal futures to move higher by midday.

Traders said the buying from Australia was probably options-related short-covering and originating from the US customers.

Gold was 23 per cent higher than the New York close on September 24 just prior to the announcement by European central banks pledging to limit gold sales, which sparked the current rally.

Technical indicators were beginning to form a stronger support base for rising prices, which could quickly pull bullion to as high as $360 if sellers can be kept at bay, an analyst said.

"Support has now moved to $310, which could allow gold to rise to the $345/360 level very quickly," a senior treasury strategist in Sydney said.