Gold hovers below lifetime high

Several one-kilo gold bars are displayed inside a secured vault in Dubai, April 20, 2006. Gold hit a 28-year high on Tuesday.

LONDON (Reuters) - Precious metals soared on Wednesday, supported by a tumbling dollar and record oil prices, with gold nearing its all-time peak, platinum setting a record and silver touching its highest level in 27 years.

Buying also was spurred by uncertainty in the U.S. credit market and expectations that the Federal Reserve would cut interest rates further, but some investors decided to take profits in late European trade.

"There is a flood of money coming into gold at the moment. You can't really stand in the way. There are hundreds of things that are supporting the market," Jeremy East, global head of metals trading at Standard Chartered Bank, said.

"It's a one-way street at the moment. Strong oil prices, a weaker dollar, subprime issues and a rush into safe haven -- everything is supporting," he said.

Spot gold hit a high of $845.40 an ounce, the highest level since January 1980, when it was fixed in London at a record high of $850.

In New York at 2:15 p.m. EST, it was quoted at $833.00/833.80, against $820.90/821.70 late in New York on Tuesday.

Most-active December gold on the COMEX division of the New York Mercantile Exchange settled up $10.10, or 1.2 percent, at $833.50 an ounce, after hitting a contract high of $848. The early session low was $824.80.

The metal has surged more than 32 percent in three months, doubled in less than three years and more than tripled from a multi-year low of around $251 in August 1999.

After adjusting for inflation, gold's record level in 1980 was equal to about $2,250 at current prices, according to industry data. Gold surged then on high inflation linked to strong oil prices, Soviet intervention in Afghanistan and the effects of the Iranian revolution.

The dollar fell to historic lows of $1.47 per euro and $2.10 to the pound on expectations of further U.S. interest rate cuts to limit damage from an ailing housing market.

"It's just possible we could see some profit taking in crude oil, which would take some heat out of the gold market," Tom Kendall, metals strategist at Mitsubishi Corporation, said. "But we are so close to $850, only a very brave person would go short of gold right now."

MOMENTUM BUYING

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 sped above $98 a barrel for the first time on Wednesday, closing in on the landmark $100 level, driven by a slumping U.S. dollar and worries over a winter fuel supply crunch.

However, oil dropped $2 to a little above $94 a barrel by early afternoon as speculators took profits from the record rally.

"Waiting for the correction runs the risk of missing the next $50 or $100 on the upside. To be sure, the higher gold goes, the deeper the fall will be at some point," said John Reade, head of metals strategy at UBS Investment Bank.

The physical sector came to a standstill as rising prices scared off jewelry makers in Asia. Dealers in Singapore also noted selling of gold scrap from Indonesia, which is Southeast Asia's largest consumer, as holders cashed in on gold's rally.

In other bullion markets, benchmark Japanese gold futures rose more than 2 percent to hit a 23-year high.

Gold also surged in some other currencies, with the metal quoted in sterling hitting a record high of 402.87 sterling per ounce. It rose as high as 576.02 euros, an all-time high.

Spot silver hit an intraday high of $16.19 an ounce before falling to $15.38/15.43, compared with its previous finish of $15.37/15.42.

Platinum hit a record high of $1,484 an ounce to track gold's jump, before dipping to $1,456/1,460, versus $1,473/1,477 late in the U.S. market on Tuesday. Palladium was down $3 at $372/376.

(Additional reporting by Frank Tang in New York and Lewa Pardomuan in Singapore; Editing by Walter Bagley)