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Profit-taking thwarts COMEX gold bid for new highs

NEW YORK, Oct 23 (Reuters) - COMEX gold muscled to within $7 of September's 7-year high early Thursday, before a pause in the dollar's decline gave gold bulls an excuse to pocket some winnings on this week's strong recovery.

"It was crazy in the first hour," said a floor broker. "Weakness in stock market had everybody thinking we were going to see the moon today. But there was nothing but fund selling this morning."

"You can call it a consolidation day after three straight up days," he said.

The greenback fell to a 13-day low against the euro overnight, making gold a better buy in Europe and helping December gold reach $388.10 an ounce. That was its priciest since Sept. 30 and beat Wednesday's high by 10 cents.

The benchmark contract ended $1.80 lower at $385.00 an ounce, bottoming for the day at $383.30. It gained $4.80 on Wednesday.

Spot gold hit $387.50 an ounce and closed at $384.20/70, down from $386.00/6.50 late Wednesday. London bullion dealers fixed the afternoon reference price at $384.50.

Recent Bush administration efforts to talk the dollar down to more competitive levels for U.S. exporters have been a godsend to gold, which has risen $18.50 since Friday.

"The overall feeling of the market is bullish from various areas," said Frank Aburto, a broker with F.C. Stone, adding "there is no longer that heavy selling of hedge trading from the producer area."

December gold topped at $394.80 on Sept. 25, a price last seen in May 1996. Overbought investors liquidated positions this month and futures hit a 7-week low at $366.50 on Friday.

Commodity funds have been reliable buyers on the dips even as U.S. economic indicators brighten. Commercial demand for gold bars and coins from India and the Middle East also underpinned the market in the run up to October's Diwali festival and the Muslim holiday Ramadan.

The euro topped at $1.1846 Thursday, less than $1 from its lifetime high against the dollar in late May.

"It's bouncing around with the currencies here," another trader said. "The euro was $1.1846 and gold was $387.50. Now it's back under $1.18 and we're just above $385. So that correlation is back on track, it seems."

December silver rose 3.7 cents to $5.172 an ounce. It followed gold to a 23-day high at $5.19, off a low at $5.105. Spot silver rose to $5.15/17 from $5.11/13. The fix was $5.145 an ounce.

The NYMEX January platinum contract rose $6.30 to at $745.70, hitting a fresh high at $746.80. Spot platinum was quoted near a 23-year high at $744.00/749.00.

"There has been more demand from the Far East/Japan area, with the yen perking up," Aburto said. "It looks like the Japanese have been in both markets, the platinum market and also gold."

December palladium went up 80 cents to $202.45 an ounce. Spot palladium fetched $198.00/203.00.