UPDATE 2-Gold hits new 25-year peak, sentiment upbeat
5/5/2006 Sydney, Australia


LONDON, May 5 (Reuters) - Gold glittered on Friday as investor interest buoyed by firm oil and geopolitical worries pushed the metal to a new 25-year high, just $15 away from the next big target of $700 an ounce.

Gold was becoming increasingly vulnerable to a sharp correction, but upbeat market sentiment prompted market players to buy more, dealers said.

"The speculators and long-term players are adding to their positions. The overall situation hasn't changed. It's Iran, it's the dollar, it's inflation," said Wolfgang Wrzesniok-Rossbach, head of precious metals at Heraeus.

He saw gold trading in a range of $675 to $690.

Spot gold (XAU=) rose as high as $684.10 an ounce before easing to $681.50/682.50 by 0955 GMT, against $676.90/677.90 in New York late on Thursday. Gold, which jumped to a record high of $850 in early 1980, has gained 32 percent this year.

Dealers said gold was seen as technically overbought but tension in the Middle East, high oil prices and a volatile dollar would underpin the metal.

Oil rebounded above $70 a barrel as bargain-hunting traders and persistent geopolitical risks stemmed a two-day rout.

The market remains anxious over the risk of disruption from fourth-largest oil exporter Iran, locked in an intensifying row with the West over its nuclear ambitions.

At the United Nations, Western powers plus China and Russia held a first round of talks on a draft resolution that demands Tehran suspend nuclear activities. The sponsors have warned they will push for sanctions if Tehran persists. [ID:nN04197383]

"Volatility will continue to dominate today as the weekend approaches and with technical support and resistance levels providing no real assistance, dealers will continue to go with the flow," Standard Bank said in a note.

DOLLAR WATCHED

Market players would be watching the currency market for direction ahead of the release of U.S. April payrolls data amid a lack of activity in the physical market, dealers said.

"It's very sluggish on the physical sector. It's too expensive to buy gold. I would rather buy other things such as an apartment," said a dealer in Hong Kong.

The dollar marked time just off a one-year trough against the euro, supported by expectations that strength in U.S. jobs data could reverse its three-week sell-off.

The dollar fell half-a-percent against the euro on Thursday, making gold cheaper for holders of other currencies.

Traders saw an outside chance of a dollar bounce should U.S. April payroll figures later on Friday handily beat forecasts of a rise of 200,000 in U.S. employment and a 4.7 percent jobless rate. The data is due at 1230 GMT.

Gold mining companies cheered after recording strong financial results on the back of high prices.

South Africa's AngloGold Ashanti Ltd (ANGJ.J), the world's third biggest producer, posted a more than doubling of adjusted first quarter earnings per share on Friday.

Barrick Gold Corp. (ABX.TO), which became the world's top gold miner with its takeover of Placer Dome, reported this week its first-quarter profit more than tripled as it benefited from strong gold prices and increased production.

John Meyer, analyst with Numis Securities, said a sharp drop in gold hedging commitments by miners was a clear indication that producers had positive outlook about the gold price.

Global hedgebook fell by 5.0 million ounces to an estimated 48 million in the first quarter of the year, compared with 100 million ounces some four years ago.

In other precious metals, platinum (XPT=) was unchanged at $1,173/1,178 an ounce, while palladium (XPD=) fell $0.50 to $377.00/382.00 an ounce.

Silver (XAG=) rose as high as $14.09 an ounce before settling at $13.97/14.07, versus $13.94/14.04 in New York. (Additional reporting by Lewa Pardomuan in Singapore)