Gold briefly traded over $800 an ounce on Wednesday, bringing recent 28-year highs back into view as oil topped $99 per barrel and the dollar plumbed record lows against the euro.
With investor worries over the crisis in credit markets and slowing U.S. growth increasing, analysts said gold's appeal as an alternative investment was back on investor's radar screens.
But trade was volatile, with liquidity thinned by several market participants attending a global precious metals conference in Mumbai and a shorter U.S. trading week for the Thanksgiving holiday.
Spot gold hit an intraday high of $807.10 an ounce before paring gains to stand at $797.00/797.80 by 7:00 a.m. EST compared with $793.90/794.70 quoted late in New York on Tuesday.
Analysts said that while the drivers for gold were looking positive, a further correction from this month's rapid run to 28-year highs at $845.40 could not be ruled out, with speculators still holding the strings.
The key question is are we going to see $750 before we see $850. Positioning is still extreme and everybody is long on the (U.S. COMEX) futures market -- really we have to find new buying to see things move back up again, UBS metals analyst Robin Bhar said.
Major cues continued to come from oil and currency markets. Crude oil retreated from a record high, having closed in on the landmark $100 milestone earlier as the dollar sank to record lows versus the euro.
Sentiment for the dollar was undermined after the Federal Reserve said U.S. growth would likely slow in 2008, underscoring market expectations for more monetary easing.
The euro later retreated slightly to trade at $1.4789, after striking a record high of $1.4856.
U.S. light crude for January delivery on the New York Mercantile Exchange, or NYMEX, jumped by more than $1.00 to a record $99.29 a barrel before tracking back to $97.71, down 31 cents on the day.
A weaker dollar raises the appeal of dollar-priced gold for non-U.S. investors, while surging oil prices highlights the metal's role as a hedge against inflation.
In other bullion markets, the benchmark October 2008 gold futures on the Tokyo Commodity Exchange closed at 2,836 yen, a gain of 38 yen or 1.4 percent.
The most-active December gold contract on the COMEX division of the NYMEX was up $5.800 an ounce at $797.20 in electronic trade.
PLATINUM NEARS RECORD
Spot platinum rose to $1,470/1,475 an ounce from $1,463/1,467, nearing its record high of $1,484 hit earlier this month, as worries about supply persisted.
Dealers cited last week's cut in refined platinum output for 2007 from top producer Anglo Platinum.
A report in mid-November by Johnson Matthey, the world's top platinum refiner and fabricator, said the world platinum market would end 2007 in deficit, reversing an earlier forecast for a small deficit.
All the news stories are good for platinum -- the only thing hanging over the horizon is the word recession and if we do see a economic slowdown that might just affect demand, a trader said.
In other precious metals, silver rose to $14.56/14.60 an ounce from $14.61/14.66 late in New York on Tuesday, while palladium climbed to $361/364 an ounce from $358/361 an ounce.
(Reporting by Veronica Brown; Editing by Chris Johnson)