By Alden Bentley
NEW YORK, Nov 14 (Reuters) - COMEX gold rallied again Friday but tormented bulls with a third failed swipe at $400 an ounce as worries about the dollar and U.S. troubles in Iraq fortified the safe-haven metal at 7-1/2 year highs.
In other precious metals, silver rode gold's coattails to its priciest level in more than 3 years in New York futures trade.
"More pertinent than anything, it appears to most floor people, is the lack of selling in both markets," said Donald Tierney of Pell Brothers Futures.
December gold settled up $3.70 at $398.00 an ounce, trading from $394.20 to $399.40. The market was quite volatile on the approach to $400 and estimated volume was a busy 78,000, including 7,056 switches.
Spot gold closed at $397.25/8.00, up from $394.40/70 late Thursday and Friday's afternoon fix at $396.70 in London.
Commodity trading advisors and other funds have been buying heavily, training their guns on what has been a huge psychological level for gold over the years. Many just want to see $400 flash on the board for the first time since March 1996.
"I guess it's a self-fulfilling prophesy," said David Rinehimer, head of commodities research at Citigroup Global Markets. "Certainly the path of least resistance right now is to the upside, as long as the dollar stays weak."
In COMEX options, the $400 strike has most of the open interest in December calls, which expire in 10 days.
"That number doesn't mean much to us on the floor," a floor broker said.
"The options pit will definitely be looking at it," he said. "Once we start to get over $398.50 you are going to start to see buying against those options and that will escalate the prices quicker and we'll see it trade up to say $402.50 before it crashes."
The dollar's weakness is making gold look more attractive as an alternative form of currency. The euro set a three-week high at $1.1857 overnight, ending at $1.1771/76.
A batch of mixed economic data added to the dollar's gyarations, whipsawing gold in turn. October producer prices rose 0.8 percent, and were up 0.3 percent subtracting food and energy prices.
Retail sales eased 0.3 percent last month, and industrial production rose 0.2 percent, coming in just under the 0.3 percent gain expected, but bolstering confidence that the economy is out of the doldrums.
The widely watched November preliminary consumer sentiment index from the University of Michigan, jumped to 93.5 from October's 89.6.
Gold is also back in vogue as increasing attacks on U.S. and allied soldiers in Iraq fan worries about a quagmire and discomfort with Washington's policy of reconstruction and security in the country.
"I understand that currency traders are starting to watch gold, rather than the other way around," said a bullion trader.
Spot silver rose 12.0 cents, closing at $5.415, trading from $5.275 to $5.43, its highest since June 2000. Spot silver fetched $5.38/40, up from $5.28/30 on Thursday and Friday's $5.30 fix.
NYMEX January platinum closed unchanged at $770.80 an ounce. Spot platinum fetched $768.50/773.50.
December palladium rose 65 cents to $203.00. Spot fetched $196.50/202.50.