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Gold Hovers Above $700, Nears 26-Year High

Gold traded above $700 on Monday and held within sight of a 16-month high, with a weaker dollar and bullion's safe-haven appeal attracting fresh buying.

The metal is closing in on a 26-year high of $730 an ounce hit in May last year and is roughly $145 below its all-time high of $850, fixed in London on January 21, 1980.

"Gold is set to remain strong around $700 as a pivot level. The currencies have enabled gold to take-off and the metal has now uncoupled from currencies. We are again running into a self-motivated trend where buying attracts buying," Frederic Panizzutti, metals analyst at MKS Finance, said.

"The move has been impressive and we might see some profit taking, but the market is definitely aiming (for) $720 as the next target. We expect the market to remain volatile in the coming days and would not be surprised to see another rally."

Spot gold touched an intraday peak of $706.60 before paring gains to $703.50/704.25 by 1007 GMT, still up from $699.90/700.70 quoted late in New York on Friday, when it rallied to its highest since mid-May 2006 at $707.10.

Friday's unexpectedly weaker U.S. non-farm payrolls data dented the dollar, making dollar-priced gold cheaper for holders of other currencies.

The dollar hit a 15-year low against a basket of currencies on Monday as the data, showing companies cut 4,000 jobs last month, stoked expectations for a hefty Federal Reserve rate cut this month.

A crunch in global credit markets stemming from problems in the U.S. subprime, or risky, mortgage sector has forced the world's major central banks to inject emergency funds into the global financial system to prevent it grinding to a halt.

"Investors are getting more confident that bullion has hit a floor and is on the way back up," said Yuki Sonoda, advisor at Daiichi Commodities.

"Finally, a gleam is in sight," he said, adding that an increased amount of gold held by exchange-traded funds (ETFs) showed steady appetite for gold by funds and other long-term investors.

The latest data showed gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, rose to 549.42 tonnes, another record high, up 33.98 tonnes or 6.6 percent from the start of the month.

"We are maintaining our bullish outlook but we would caution that recent advance in the price may run out of steam if it is not accompanied by a renewed round of U.S. dollar weakness," Deutsche Bank said in a quarterly report.

In one of the latest moves seen as bullish for the price of gold, Australia's Newcrest Mining said it planned to raise A$2 billion ($1.65 billion) via an offering of new shares to fund the closing out of gold hedges and pay back debt.

Newmont Mining, the world's second biggest producer, said in early July that it eliminated its entire 1.85 million-ounce gold hedge position.

Gold miners typically hedge more when they think prices are in long-term decline, but like full exposure to a rising market. In other metals, platinum hit a one-month high at $1,295.50 before easing to $1,293/1,298 an ounce, compared with $1,286.10/1,293.10 in New York. Palladium inched up to $333/337 an ounce from $332.50/336.70, while silver was at $12.55/12.60 ounce, versus $12.51/12.54.

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