NEW YORK, Oct 26 (Reuters) - Gold rose for the third straight session on Thursday, drawing flows from other commodities as gold bulls took aim and hit technical targets over $600 an ounce.
"It was partly due to the strength of oil in the morning, followed by weakness in the dollar, followed by the belief that the Fed is not going to raise rates, but is going to lower them shortly," said Leonard Kaplan, at Prospector Asset Management.
December gold at the COMEX division of the New York Mercantile Exchange , rose to a six-day high at $601.50 midmorning, as stop loss buy orders were triggered and short call option positions were reversed above the psychological $600 level, according to one futures desk broker.
The benchmark contract settled up $9, or 1.5 percent, at $599.80, off a low of $589.80 in overnight screen trade. It appreciated by $25.50 since bottoming at $576 on Tuesday.
Dealers could construe the close below $600 negatively, since the contract failed last week to build on a rally to $606, hitting resistance from the trendline connecting highs drawn down from 26-year peak in May above $750 an ounce.
That resistance line came in at Thursday's $601.50 high. Chartists say a break above there would be interpreted as a strong reversal signal of the medium-term bear market, which saw gold bottom at $557.10 on June 14, and $563.50 on Oct. 4.
Estimated COMEX volume was 42,000 contracts, while options turnover was 20,000. Turnover in the Chicago Board of Trade's electronically traded 100-oz gold contract was 53,751 contracts as of 2:41 p.m. EDT (1841 GMT) (http://www.cbot.com/cbot/pub/page/0,3181,297,00.html).
The dollar fell to a 20-day low against the euro and lost ground to the yen, which lowered the gold purchasing price to non-dollar investors.
The focus remains on oil, which on Wednesday rallied more than $2 after the U.S. government said inventories fell sharply, when the market was expecting a supply build.
NYMEX December crude ended Thursday down $1.04 at $60.36 a barrel, after helping lift gold to its morning highs.
"We have been tending to follow that. But I think you've got good follow through on what we've done this week and technically the market is acting bullish," said a gold floor broker.
The two commodities correlate because gold is seen as an asset that protects portfolios from inflation.
But now investors may be rotating back to gold. Profits taken out of the energy and grain markets appeared to find a home in precious metals.
"I think they're shifting some money over. What you're seeing is from the strength yesterday, there's some follow through and there's a technical play on," said Scott Meyers, analyst at Pioneer Futures, who identified $604 and $612.50 as the next resistance levels once $600 was broken.
"You're going to see volatility. I don't think it's going to see a straight line up," he said.
Spot gold bullion closed in New York at $596.00/7.50, up from Wednesday's late quote $589.20/0.70. Bullion dealers fixed London's afternoon spot reference price at $596.25 an ounce.
December silver rose 35 cents to $12.24 an ounce, trading $11.885 to $12.28, its highest price since Sept. 11.
Spot silver rose to $12.12/19 from $11.86/930 late Wednesday. The fix was at $11.97.
NYMEX January 2007 platinum went up $14.30 to $1,083.30 per ounce. Spot platinum was last priced at $1,075/1,080.
December palladium rose $3.40 to $326.50 an ounce. Spot palladium last fetched $320/325 an ounce.