PRECIOUS-Gold races to near 7-year peak after Iran strike on U.S. forces

(Adds comment, updates prices)

* Gold hits near seven-year peak at $1,610.90

* Palladium reaches record high of $2,079.50

* Gold is technically overbought - analyst

Jan 8 (Reuters) - Gold surged more than 2% on Wednesday to break the $1,600 level for the first time in nearly seven years as investors flocked to safe havens after Iran launched retaliatory missile strikes against U.S. forces in Iraq.

Prices later edged off their highs after tweets by U.S. President Donald Trump and Iran’s foreign minister eased concerns over an immediate further escalation in the conflict, but remained well supported.

Spot gold was 1% higher at $1,589.40 per ounce by 0758 GMT, having earlier hit its highest since March 2013 at $1,610.90, up 2.4%. U.S. gold futures rallied 1.1% to $1,590.90.

Iranian state television said that at least 80 “American terrorists” were killed in attacks involving 15 missiles Tehran launched on U.S. targets in Iraq on Wednesday morning.

The move by Iran came hours after the funeral of Tehran’s top military commander Qassem Soleimani, whose killing in a U.S. drone strike last week intensified fears of a war in the Middle East.

“Fears of uncertainty and further escalation in this military confrontation are dragging up gold prices,” said Margaret Yang Yan, a market analyst at CMC Markets.

“This (the Iran situation) is definitely fuelling demand for safe havens, not just gold but also yen, while equities are being heavily sold off.”

Risk aversion spiked as the attack threw financial markets into disarray, whipsawing Asian shares.

However, bullion gave up some gains after U.S. President Donald Trump said in a tweet late on Tuesday that “All is well!”, and that he would make a statement on Wednesday morning.

“Concerns should recede to an extent. The broader consensus prevails that this conflict should resolve going forward,” said Hitesh Jain, vice president of Mumbai-based Yes Securities. “No country can afford a war.”

Gold is considered a safe investment in times of political and economic turmoil.

CMC Markets’ Yan said that from a technical perspective gold is heavily overbought, and that a pullback could occur if Trump resolves the issue diplomatically without “triggering a full-blown war.”

The metal’s 14-day relative strength index (RSI) was around 88. An RSI above 70 indicates a commodity is overbought.

Elsewhere, palladium hit another all-time peak of $2,079.50 an ounce on a sustained supply deficit, and was last up 1.3% to $2,078.00.

“Palladium fundamentals remain quite strong and (the metal) faces significant upside risks,” UBS strategist Joni Teves said in a note. “Tight market conditions are well-reflected in record spot prices and persistent backwardation in forwards.”

Silver was 0.7% higher at $18.52 per ounce, after earlier hitting its highest since early September at $18.85, while platinum was down 0.2% at $969.46.

Reporting by Asha Sistla in Bengaluru; Additional reporting by Sumita Layek; Editing by Shri Navaratnam and Jan Harvey