Gold has soared in value, boosted by expectations that the supply of the precious metal will be limited by producers.

Gold was $303.5 in afternoon trade in London on Tuesday, with the price expected to remain stable above $300.

On Monday, the price of gold hit a high of $319.

The surge in the price of gold was prompted by news that Canada's second-biggest producer, Placer Dome, is cutting production.

Placer is suspending its fixed-price forward sales, known as hedges, which it has been using to insure itself against possible future price falls.

The decision single-handedly removes more than 2 million ounces of gold which would otherwise have been placed on the market this year.

Many other producers are expected to follow suit.

The price of gold slipped off its highs when North America's second-largest gold producer Barrick Gold said it would slow its hedging only slightly.

It expects to increase production to 5 million ounces in 2003, compared with 3.7 million ounces last year.

Hedge trimming

Hedge deals have been widely used by producers for many months as the gold price has plummeted.

But hedging has been blamed for contributing to downward pressure on the price - which hit a 20-year low of almost $250 (£156) last summer - because it contributed to flooding the market.

The Placer decision, which followed a prediction by the chairman of South African giant Gold Fields that demand would soon increase, could mean the slide has at last bottomed out.

Rhona O'Connell, gold analyst at London broker T Hoare, forecast prices would rise, averaging $320 (£200) an ounce over the year.

"If there had been any lingering doubts that gold had bottomed, then last week's action should have put them finally to rest," she said.

"Good news"

A spokesman for the World Gold Council, which represents the production companies, said: "This is good news for the gold producers and for many parts of the developing world."

Gold producing countries such as Ghana, Mali and South Africa had seen their economies suffer badly from the price falls.

Investors in gold are hoping Canadian mining company Barrick will follow Placer Dome's lead over hedging.

Shares in mining groups all showed robust rises, with Anglo American, Rio Tinto and Lonmin all strongly ahead.