Gold extended gains above $650 an ounce on Thursday afternoon, getting within sight of Wednesday's six-week peak, as investors flocked to the hard asset amid escalating geopolitical tensions this week.
Record high oil prices, flaring violence in the Middle East and earlier softness in the dollar prompted investors to add to gold positions and helped offset fits of profit-taking.
"It's hard to sell heavily into this market, looking at what's going on at the moment. If we continue to see an escalation in violence around the world, prices will go up still," said a precious metals dealer in London.
"I am looking for a move lower, if the political situation calms down," he added.
Gold rose as high as $655.00 an ounce and was quoted at $654.70/656.20 in New York Thursday afternoon. That compared with $647.80/9.30 late on Wednesday, when it surged to $655.30.
Some dealers said investors were keen to take profits after gold prices had rebounded from a three-month low of $543 in mid-June. Gold hit a 26-year high of $730 in mid-May.
But Iran's nuclear stand-off with the West, recent North Korean missile launches and the conflict between Israel and Hizbollah guerrillas in Lebanon would elevate gold's safe-haven appeal, they said.
"Traders seem happy using rallies to lock in profits. However, given the rather unstable political picture globally, further safe-haven-driven price spikes cannot be ruled out," James Moore, an analyst with TheBullionDesk, said in a note.
The UN Security Council set an urgent meeting for Friday after Israel launched a wave of military attacks on Lebanon. Hizbollah fighters also rained rockets on northern Israel in their heaviest bombardment in a decade.
Iran said on Thursday it would not abandon its right to nuclear technology in a defiant statement after Tehran's case was sent back to the UN Security Council over its atomic dispute.
Dealers said they also would watch the currency and oil markets for leads, but sharp gains in past days might prompt some investors to liquidate.
"There is a risk of profit-taking, but the downside is quite limited," said Matthew Turner, analyst at Virtual Metals.
Oil surged to a record high above $76 a barrel on renewed worries over supply from major exporter Nigeria and as conflict between Israel and Lebanon heightened international tensions.
The dollar was steady in the afternoon, after a choppy day. A lower US currency makes gold cheaper for buyers outside the United States.
"The market remains volatile, swinging between bargain hunting and profit taking," said Julia Hamblett, vice president at Dresdner Kleinwort.
In other metals, platinum slipped to $1,249/1,255 an ounce from $1,252/1,257 in New York, while palladium rose to $327/342 from $325/330. Silver was flat at $11.52/11.62 late in New York.
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