Precious metals raced higher on Tuesday, boosted by an ailing dollar and strong oil, with gold hitting 28-year highs, silver soaring to its best price in 27 years and platinum setting a record.

High prices sparked sales of gold scrap from Indonesia and Thailand to Singapore, a key center for bullion trading in Southeast Asia. Physical buyers remained nervous in India, the world's top gold consumer, ahead of a key festival this week.

It's just renewed vigor in the market, and a belief that right now gold is unbeatable. The market has no faith in the U.S. dollar. What we are seeing is money continuing to come out of the dollar and going into gold, said Peter Hillyard, head of metals sales at ANZ Investment Bank.

There is a chance that this market may have to consolidate, but we will go to $850 by January -- not 'may' but 'will.' It's a done deal. It's going to happen.

Spot gold hit a high of $824.30 an ounce, its best level since January 1980. It was quoted in New York at $820.90/821.70 by 2:15 p.m. (1915 GMT), against $808.80/809.60 late in the U.S. market on Monday.

Gold hit an all-time high of $850 in January 1980, when investors bought heavily in the face of high inflation linked to strong oil prices, Soviet intervention in Afghanistan and the effects of the Iranian revolution. After adjusting for inflation, that level was equal to $2,079 at 2006 prices.

The dollar fell to all-time lows against the euro and a basket of major currencies as investors feared that fall-out from credit turmoil was far from over and the Federal Reserve would have to cut interest rates further.

The dollar is the biggest, biggest issue in this market here. Crude at all-time high, and dollar at all-time lows. The metals have to rally, said Joseph Guzzardi, a floor trader at Sabin Commodities in New York.

A weaker dollar makes gold cheaper for other currency holders and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

Oil jumped more than $3 to a record high above $97 a barrel as the U.S. government predicted robust demand and tight output from the Organization of Petroleum Exporting Countries would lead to a supply crunch.

It's still largely a dollar story, but there is clearly more than that. Gold has just got momentum, Stephen Briggs, an economist at SG Corporate and Investment Banking, said.


Gold also surged in some other currencies, with the metal quoted in sterling hitting a record high of 393.83 sterling per ounce. It traded at 564.02 euros , just below last year's all-time high of 569.90 euros.

UBS Investment Bank lifted its one-month gold price forecast to $850 from an earlier prediction of $700 an ounce, but left its three-month forecast unchanged at $750.

We caution investors that capturing the expected moves to the upside will require nimble trading as the risks of trading gold have materially increased over the past few weeks as liquidity has declined and volatility increased, UBS said.

Briggs also said the metal had gone so far so fast and the investment community was very long in gold.

We desperately need a correction now. It has been going up almost without a break since $650 back in the summer and no correction on the way. If we do get a correction, I think it's going to be very sharp and brutal, he said.

In other markets, the benchmark Tokyo gold futures contract rose above the closely watched level of 3,000 yen per gram for the first time since July 1984.

Silver rose as high as $15.40 an ounce before falling to $15.36/15.42, against its previous finish of $14.64/14.69 on Monday.

Platinum hit a record high of $1,474 and was at $1,473/1,477, versus its previous close of $1,459/1,463. Palladium rose to $375/379, compared with $371/376 late in New York Monday.

(Additional reporting by Frank Tang in New York)