NEW YORK, Aug 20 (Reuters) - Fund buying lifted COMEX gold back toward recent highs early Wednesday, with a mild setback in the dollar and worries about increasing chaos in Iraq feeding the move.
Growing confidence that the U.S. economy has turned the corner failed to dampen gold sentiment. Many investors still distrusted paper assets like stocks and bonds and want safe-havens after Tuesday's bombing of the United Nations headquarters in Baghdad.
Speculators were betting that economic recovery would lift platinum, an industrial metal, taking NYMEX futures to a contract high.
December gold at 1026 EDT was up $3.30 at $366.30 an ounce, building on Tuesday's $3.10 rally. It touched $362.10 and $366.50, closing in on last week's $368.80 high and the $369.70 peak from July 28.
Spot gold was quoted at $363.60/4.35, up from $361.60/2.10 late Tuesday in New York. The morning fix was $362.20.
Gold appears to be shedding its tight relationship with the euro, which fell overnight. But the euro's partial recovery from a low at $1.1082 added to gold's upward momentum.
"The last time (gold) went up to $366 the euro was at $1.14," said a dealer at a precious metals refining company. "On the other hand, the dollar seems to show a little weakness against the yen."
He added, "When the market is in this positive mood, all you need is something to trigger the move and I think the bombings did that yesterday."
Geopolitical tensions are supportive for gold, as is a weak dollar, which makes bullion cheaper for overseas investors. Gold hit 6-1/2 year highs in February in the build-up to the U.S. invasion of Iraq.
Attacks on U.S. soldiers and international workers in Iraq have raised the specter of a deepening military and political quagmire for the United States. At the same time, Tuesday's deadly bus bombing in Jerusalem was the biggest threat yet to the U.S. "road map" to Middle East peace.
September silver was off 0.5 cent at $4.99 an ounce, trading $5.02 to $4.96. Spot silver was quoted at $4.97/99/ off from $4.98/5.00. The fix was at $4.995.
NYMEX October platinum was up $1.20 at $701 an ounce, setting a high of $706. Spot fetched $698.00/703.00.
"In physical demand, there is nothing special going on there. It's all New York speculative buying. So I don't think it's going stay up here," a precious metals trader said of platinum.
"It's still got part of the South African production difficulty story behind it. I think that's probably the only true fundamental that one could say would help propel this thing forward," he said.
September palladium was up $3 at $184.00 an ounce. Spot palladium fetched $176.00/181.00.