Gold soars to record high above key $850/oz level

By Atul Prakash and Veronica Brown

LONDON (Reuters) - Gold prices swept to a record high on Wednesday above the key $850-an-ounce mark, driven by surging oil, a weaker dollar and simmering geopolitical tensions that polished its safe-haven credentials.

Other metals jumped on bullion's bandwagon, with platinum scoring a record high, silver at its highest since mid November and palladium at two-month highs.

Spot gold surged to a record $861.10 an ounce -- surpassing the $850 fixing high of January 1980.

It later backtracked slightly to $855.70/$856.50 in New York at 2:25 p.m. EST (1925 GMT), compared with $832.70/833.50 quoted late in New York on Monday.

Most-active gold futures for February delivery GCG8 settled up $22, or 2.6 percent, at $860 an ounce on the COMEX metals division of the New York Mercantile Exchange, after surging to $864.90, a contract high.

"It's not surprising, given that gold's a safe-haven asset. It's reflective of the fact there is risk aversion in the market in the new year," said Phylis Papadavid, strategist at Socgen. "Right now the market is wanting more clarity on the U.S. economy."

The euro extended gains against the dollar on Wednesday after a gauge of the U.S. manufacturing sector last month dropped to its lowest since April 2003, increasing expectations for more Federal Reserve rate cuts and proving a final catalyst for gold's latest move higher.

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