Gold slipped in afternoon trade in New York on Monday after hitting one-week highs on a weaker dollar, as oil prices plummeted and concerns about credit markets resurfaced.

Spot gold rose as high as $676.50 an ounce before falling to $670.80/671.40 by 3:00 p.m. EDT, against $674.10/674.90 late in New York on Friday.

Most-active gold for December delivery on the COMEX division of the New York Mercantile Exchange settled down $1.20 at $683.20 an ounce. It touched a high of $687.40 in early electronic trade, which marked the loftiest level since July 26.

U.S. crude plummeted nearly 5 percent to end down $3.42 at $72.06 a barrel, after setting record high last week.

The dollar index briefly dipped below the psychologically key 80-mark, falling to 79.957, a level last seen in September 1992, before recovering. It last traded up 0.2 percent at 80.263.

Looking just at the U.S. dollar picture, it's fair to say that gold prices remain well supported, said Michael Widmer, director of research at Calyon Corporate and Investment Bank.

The dollar is one factor at the moment, but the second important factor is the market volatility. And if you have got equity markets being hit, then that generally means that gold prices don't do very well either.

The deepening malaise in global credit markets sent U.S. stocks hurtling lower on Friday and the spillover continued into the weekend as the president of Bear Stearns resigned after the brokerage said on Friday fixed income markets were going through their roughest patch in over 20 years.

Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it has behaved much like other financial assets because of the growing role of commodities in diversified portfolios.

There is incredible nervousness in the financial market about the U.S. housing market, the subprime mortgage market and so on, and that's why you are getting big swings in gold, said Matthew Turner, precious metals analyst at Virtual Metals.

LONG-TERM TREND

But some analysts said that despite gold's range-bound trade in the past weeks, it had potential to surge in the long-term.

We remain bullish towards gold and expect the metal to push towards $700 once the market moves out of the summer months, said James Moore, precious metals analyst at TheBullionDesk.com.

Gold producer Newmont Mining said strong demand from the jewellery sector was set to push gold prices up to around $750 an ounce in the northern autumn.

Demand by foreign residents buying gifts ahead of vacations helped Abu Dhabi's gold sales, with volumes rising 10 percent in July compared to the year-ago period.

In industry news, Harmony Gold, the world's fifth-biggest gold producer, said it expected to report headline loss per share of between 130-160 cents per share and an 8-12 percent decline in gold production for the June 2007 quarter.

Dealers noted comments by Italian Economy Minister Tommaso Padoa-Schioppa, who said that he would check whether the Bank of Italy had excess gold and currency reserves. He has defended using any surplus to pay government debt.

Platinum rose to $1,292/1,296 from $1,287/1,292 an ounce in late U.S. trade on Friday. Silver rose as high as $13.14, the highest since July 26, before falling to $12.94/12.98, versus $13.10/13.15, its previous finish in New York, while palladium fell $1 to $361/364 an ounce.

(Additional reporting by Frank Tang in New York)

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