NEW YORK, Sept 23 (Reuters) - COMEX gold jumped to a two-month high then faltered Monday, ending up slightly on financial market jitters about U.S. plans to use full military force, if necessary, to dismantle Iraq's weapons programs.
Precious metals seem poised for a new bullish phase, sustained by the weak dollar and Wall Street worries about growth, earnings and global instability, dealers said.
"There was good two-way business today. Options expirations might have something to do with the reason why gold was locked in a range," said Ian MacDonald, head of bullion dealing at Commerzbank, referring to over-the-counter options expirations on Thursday.
"Everybody is just waiting to see what happens next with the Dow and everything in Iraq," he said.
December gold hit $326 an ounce in early trade, its highest since July 23, gyrating back into negative territory then settling 90 cents firmer at $324.10. The low was $322.60.
Trade was thin and New York players wanted to limit risk before Federal Reserve policy makers gather to discuss interest rates and the economy on Tuesday.
"Japan is on holiday for one thing. So, you don't get any help or hindrance from that segment, which can be significant," said a bullion dealer. "It's a dollar-related thing today and we have the Fed meeting tomorrow.
Spot gold closed at $322.75/323.25, up from $321.90/2.40 at Friday's close. London bullion dealers fixed gold at $322.50 an ounce Monday afternoon.
Most economists expect the Fed to hold interest rates steady at 40-year lows and stick to its assessment after the last meeting that there is a more acute risk of economic weakness than of inflationary growth.
A rate cut might further weaken the dollar, thereby lifting gold. Gold's renewed strength came as the greenback weakened recently back toward the summer lows against the euro.
Speculators have been accumulating gold positions but were not nearly as overbought as they were in May, when bullion was rallying to June's 2-1/2 year highs.
The CFTC Commitments of Traders report released late Friday showed the net speculative long on the COMEX expanded to 25,186 contracts as of last Tuesday, from 19,821 the week before.
Investor flight from equities helped put December gold within striking distance of the June 4 high at $333.30 Monday. The Dow Jones industrial average was down 1.7 percent in afternoon trade, eyeing the five-year lows from July.
Gold was still seen as a hedge against potential inflation as oil prices moved to fresh 19-month highs above $30 a barrel on prospects of Middle East supply disruptions.
The United States has transported military hardware to the Gulf region, which has been interpreted as preparation for another Gulf War. The Pentagon says it is for exercises.
Iraq denounced on Monday as "wicked" U.S. attempts at the United Nations to adopt a tough resolution on Iraqi disarmament, saying Washington was seeking U.N. cover for any military action.
December silver slipped 0.2 cent to $4.648 an ounce, trading $4.685-$4.60. Spot silver closed at $4.62/64, off from $4.63-$4.65 late Friday. London's fix was $4.6375 an ounce.
NYMEX October platinum rose $10 to $568 an ounce. Trading was thin because the Tokyo Commodity Exchange was closed. Spot platinum was priced at $570/575.
"It's pretty tight here in the States, industrially. It's poised to go higher I think," said the bullion dealer. "If they can get it up overnight and the yen remains reasonably weak, you might see some short covering in Japan."
December palladium slipped $1 to $330 an ounce. Spot palladium fetched $326/336 an ounce.