Gold rises near seven-month peak as dollar ails

By Frank Tang and Clare Black

NEW YORK/LONDON (Reuters) - Gold rose on Wednesday, notching up a new seven-month high, as the dollar plumbed a six-week low against the euro after Federal Reserve Chairman Ben Bernanke said inflation pressures were beginning to ease.

Spot gold XAU= hit a peak of $671.85 an ounce but attracted selling and had slipped back to $668.80/669.50 by 3:24 p.m. EST (2024 GMT), up from $664.00/664.70 late in New York on Tuesday.

Most-active gold for April delivery GCJ7 on the COMEX division of the New York Mercantile Exchange settled up $3.50 at $672.00 an ounce, after peaking at $676.60 which marked a six-month high. It bottomed at $668.0 in electronic trading earlier.

Silver XAG= broke back above $14 to its highest level since early December.

Renewed dollar weakness and a bounce in oil prices were seen as the main short-term drivers in gold. Restrained mine production and geopolitical tensions were also cited as supportive background factors that have drawn investors back to the market.

Gold has risen about 11 percent since it fell to a low of $601.70 early January.

"(We) have been calling for a weaker U.S. dollar for some time, mine production is really constrained and with decent investment demand coming in, you could expect gold to push back toward the highs of May last year," said David Thurtell, metals analyst with BNP Paribas.

Output of gold in the world's biggest producer, South Africa, fell 12.4 percent in volume terms year on year in December 2006.