UPDATE 5-Gold hits 1-month high as dollar hits lifetime low

(Updates with New York closing prices, market activity)

By Atul Prakash

LONDON, July 12 (Reuters) - Gold jumped 1 percent to a one-month high on Thursday, powered by the dollar that slumped to a record low against the euro and as the precious metal's recent rally led to a sharp inflow into the largest bullion exchange-traded fund.

But the metal was likely to attract heavy selling at key technical points on its upward move as investors were not yet convinced it was on a recovery path, analysts said.

Seasonally less-active months for physical buying and the approaching holiday period could also cap sharp price gains, but the near-term outlook was positive, they said.

"Gold is supported by the weakening in euro/dollar, driven by the continued concerns over the U.S. subprime mortgage market in the past few days. It is likely that the stream of bad news in the mortgage market will not abate," said Michael Widmer, analyst at Calyon Corporate and Investment Bank.

"Investors are also set to look at signs that may indicate any contagion from the housing market in the U.S. economy. Against this backdrop, it is likely that gold prices will be strong in the coming days."

Spot gold XAU= rose as high as $669.05 an ounce and was quoted at $667.20/668.00 by 2:30 p.m. EDT (1830 GMT), up from $660.30/660.90 late in New York on Wednesday.

Most-active gold for August delivery GCQ7 on the COMEX division of the New York Mercantile Exchange settled up $6.20 at $668.30 an ounce. Earlier, it surged to a session-peak of $671, the loftiest level since June 7. It hit a low of $661.80.

The dollar dropped to a record low against the euro as troubles in the U.S. mortgage and credit markets continued to dampen the currency's appeal.

The dollar's selloff this week was triggered by reports from credit rating agencies Standard & Poor's and Moody's Investors Service on Tuesday that warned of downgrades to more than $17 billion of debt related to risky mortgages, much of it subprime.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand.

"As long as the euro-dollar keeps making new highs, then we'll keep following it. We will keep going higher," Joseph Guzzardi at Sabin Commodities said from the COMEX trading floor.

LONG-TERM OUTLOOK

The long-term outlook for gold remained positive.

A Reuters poll suggested on Wednesday that average gold prices would jump nearly 10 percent this year and gain further in 2008 on a weaker outlook for the dollar, less aggressive sales by central banks and physical demand. [ID:nL09879943]

A recovery in gold prices after a three-month low at $638.90 on June 26 helped exchange-traded funds (ETFs) attract fresh inflows after witnessing a sharp decline.

Data showed that holdings in New York's StreetTRACKS ETF XAUEXT-NYS-TT rose to 481.15 tonnes on Wednesday, against 463.45 tonnes two weeks ago and a record high of more than 500 tonnes in April.

Platinum XPT= rose to a six-week high of $1,315.90 an ounce and was last at $1,314.80/1,321.80, against $1,298/1,305 late in New York on Wednesday, supported by news of a labour dispute in South Africa.

South African trade unions declared a dispute against the world's biggest platinum producer, Anglo Platinum Ltd. (AMSJ.J), on Wednesday after it refused to increase its wage offer.

"Prices might shift higher in the next month or so, depending on the outcome of difficult wage talks in South Africa ... An outright strike is at this stage remote, but if it happened it could be bitter," Fortis Bank said in a report.

Palladium XPD= edged up to $367.75/371.75 an ounce from its previous close of $365.55/369.55 in New York, while silver XAG= rose as high as $13.11, the highest in nearly three weeks. It was last traded at $13.07/13.12 an ounce, versus $12.87/12.90 in the U.S market on Wednesday.

(Additional reporting by Frank Tang in New York)