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SINGAPORE, Marh 31 (Reuters) Gold matched a 25-year high above $588 an ounce and platinum hit another record high of $1,092 on Friday, as fund managers poured money into precious metals on hopes of better returns.

Silver hit its highest in more than 22 years and palladium rose to its best level since August 2002, reflecting heavy fund buying in commodities before the end of the first quarter of 2006.

Spot gold rose to as high as $588.70 an ounce before easing to $587.20/588.10, higher than $586.20/587.10 late in New York on Thursday.

Gold has gone up as much as $71.70 an ounce, or 13.8 percent in value, since the end of 2005 as funds and investors diversified into precious metals on worries about inflation, tension in the Middle East and uncertainties about the dollar's outlook.

''Certainly, it looks like we are targeting $600 in the near term. It may happen in London overnight,'' said Darren Heathcote, head of trading at N M Rothschild in Sydney.

''The funds have been very heavy buyers and there's a bit of technical buying as well. We don't really see it stopping for the time being. There's been a contagion across the metals,'' he said.

Tokyo gold futures prices rose to its highest in 18 years after a surge in dollar-based spot gold and firm oil prices ignited heavy buying by fund operators and Japanese retail investors.

Benchmark gold futures on the Tokyo Commodity Exchange rose as high as 2,248 yen per gram, the highest for a benchmark contract since October 1987.

Strong bullion prices fired a rally in gold miners.

Australia's Newcrest Mining Ltd. , the industry leader, added 3.81 percent and Lihir Gold Ltd. shot up 4.4 percent.

GOLD IN SHORT SUPPLY Firm investment demand in India and China, buying by central banks, falling output in main bullion producer South Africa were among factors which created a shortage in supply and kept gold's fundamentals strong, said Elmer Stewart, president and chief operating officer of Alhambra Resources Ltd. .

The Canadian firm operates a gold mine in Kazakhstan.

''We are seeing a decrease in the gold supply, but we are also seeing on the upside an increase in primary demand,'' Steward told Reuters on the sidelines of a mining conference in Singapore.

''How much the short supply could be? It's 600-700 tonnes a year,'' he said.

South African gold production fell 13.3 percent in 2005 to 296.3 tonnes due to a weak gold price in rand terms in the first part of the year, and as restructuring at some companies closed shafts and mines.

Analysts said funds were diversifying into commodities as they saw stronger returns than in other assets such as bonds, currencies and equities.

''All those commodities are going to have to rise in value as we are in short supply and we are printing too much money.'' said Peter Schiff, CEO and Chief Global Strategist at U.S.-based Euro Pacific Capital.

''It's not even a function of those commodities' rising.

It's also a function of currencies losing value. Commodities have just formed bottoms. It's early. This is still very early,'' he said on the sidelines of the mining conference.

In other precious metals, platinum rose to another record high of $1,092 before easing to $1,089/1,094 an ounce, still up from $1,088/1,092 late in New York.

Silver rose to its highest in more than 22 years at $11.72/11.75 an ounce from $11.62/11.65 late in New York.

Silver has risen more than 14 percent since early last week when the U.S. Securities and Exchange Commission cleared the way for final approval of the first exchange-traded fund.

Palladium rose to its best price since August 2002 at $348 an ounce. It was later quoted at $344/348 an ounce, up from $343/347 in the U.S. market.

REUTERS PV SP0930