Gold crept to within $2 of last week's 17-3/4-year high in Europe on Thursday as funds continued to buy on the back of high crude oil prices and the currency market remained choppy, dealers said.
Looking ahead, gold was expected to touch the $480-an-ounce mark before potentially surging to $500 and above by the middle of 2006 on geo-political worries, strong physical demand and volatile currency markets, they added.
Spot gold subsequently retreated to $471.90/472.60 a troy ounce by 1501 GMT, up from $469.05/469.75 in the late New York trade, but off an earlier peak of $473.50.
Bullion reached $475 one week ago, its firmest since July 1988.
"We are not very far from the $475 high and I think the market is self-positioning itself to challenge that level," said David Holmes, vice president of commodities at RBC Capital Markets.
"I think it is likely to happen sooner rather than later because once we are through the quarter-end, then the funds may be tempted to take profits."
Funds have long positions and would like to see high prices at the end of the quarter to post good returns on their investments, traders said.
"I think the current environment is very supportive for gold," said Yingxi Yu, precious metals analyst at Barclays Capital. "There is still a considerable amount of fund buying interests on price dips."
She said gold was finding good support due to ongoing economic uncertainty and the increased risk of inflation following higher crude oil prices.
Oil strode towards $67 a barrel, stoked by fears that hurricane-wrecked US refineries would be unable to churn out ample heating fuel to warm American consumers this winter.
"Oil-driven inflation concerns seem set once again to propel the gold market higher with fund players keen to push the market in their favour," said James Moore of The Bulliondesk.com in a daily report.
Some traders felt the market was overbought and therefore vulnerable to a sell off by speculators as they book profits.
The dollar rallied to session highs against the euro and pared losses against the yen on Thursday after a report that showed US weekly jobless claims fell more than had been expected.
The after-effects of Hurricane Katrina distorted some regional US labour markets, complicating a clear reading of the claims data, but some currency analysts said the report hinted at a stronger-than-expected monthly US non-farm payrolls report for September.
Gold denominated in euros hit a new record high above 392 euros.
Silver was traded at $7.44/7.47 versus $7.33/7.36 in New York on the previous day.
Platinum was at $924/929, up from $915/$919, while sister metal palladium was at $196/199 against $196/200.
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