Gold pares gains but ends higher on weak dollar

NEW YORK (Reuters) - Gold trimmed gains after rising toward its recent 28-year peaks to finish about $2 higher in New York on Wednesday, and the precious metal must breach chart-based resistance before rising further, traders said.

Spot gold rose as high as $745.80 an ounce and came closer to last week's high of $747.65 -- the highest level since January 1980. It was quoted at $738.80/739.60 by 2:15 p.m. EDT, compared with $736.60/737.40 late in New York on Tuesday.

Most-active December gold on the COMEX division of the New York Mercantile Exchange settled up $2.90 at $746.0 an ounce. It hit a low of $742.80.

"We are seeing (buying) pressure coming from the dollar. They are hitting the dollar again. Basically it's propping up gold here," said Joseph Guzzardi, a floor trader at Sabin Commodities in New York.

Gold futures had jumped as much as $8 or so to a session high of $751.90. They later fell after running into a wall of resistance.

"We are still having trouble at the $750 to $760 area. We have some good resistance there. If we get through that area, I think we will be OK," Guzzardi said.

The dollar fell as currency investors worried that the Federal Reserve may cut interest rates again this year to boost the economy, after the Federal Reserve disclosed the minutes from its September meeting late on Tuesday.

Though minutes from the Fed's September meeting, at which the Fed cut rates by half a percentage point, revealed little inclination to cut again this month, investors feared signs of slower growth would force the central bank's hand by year-end.

A cut in interest rates is often seen as a negative factor for the dollar as investors turn to alternative assets, such as gold, to park their money.

But some bullion analysts were not so bullish on gold in the near term.

"We remain skeptical about the prospects for material near-term upside in gold due to the size of long positions held on U.S. futures markets," said John Reade, head of metals strategy at UBS Investment Bank.

"Yet so far there is no sign of capitulation from gold longs, so we are merely marking time at the top of the range waiting for conviction," he wrote in a daily research report.

Yet Reade is bullish about the long-term outlook for bullion. On Monday, he raised the gold price forecast for 2008 and 2009, citing strong supply-demand fundamentals.

The key August 2008 gold contract on the Tokyo Commodity Exchange closed up 43 yen or 1.6 percent to 2,822 yen per gram, the day's peak and the highest for any benchmark since April 1985.

Central banks which signed the Central Bank Gold Agreement sold 475.75 tonnes of gold in the third year of the agreement ending September 26, according to a statement released on Wednesday by the Bank for International Settlements on behalf of the signatories.

Also on Wednesday, Germany's Bundesbank told Reuters that it will hold on to the vast bulk of its gold reserves in the next 12 months, selling only enough bullion to mint coins.

Heavy gold sales from central banks had taken a toll on bullion investor sentiment earlier this year.

In investment news, BlackRock fund manager Graham Birch, who manages $9.4 billion in gold equities, said he expects prices of gold to gain further this year and a gently rising trend to be sustained in the long term, with demand from China playing an increasingly vital role.

Other precious metals also gained, with platinum jumping to $1,381/1,388 from $1,363.50/1,370.50 an ounce late in the U.S. market on Tuesday. Palladium rose to $372.50/376.50 an ounce, the highest in more than three months, versus its previous finish of $362/366 in New York, while silver climbed to $13.54/13.59 an ounce from its prior New York close of $13.46/13.51.

(Additional reporting by Atul Prakash in London)