A sickly dollar and firming oil prices swept gold to 28-year highs on Thursday, while platinum was set in London at a record high of $1,407 per ounce, aided by rising bullion prices and worries over supply.

Dealers and analysts said fund buyers, seeking safe stores for their cash due to continuing unease over problems in credit markets, had the bit between their teeth and would eventually targeting a record high above $800.

Palladium also touched a near six-month high. However, traders warned it could be prone to heavy liquidation because its recent strength was largely driven by speculative funds.

When you have a weaker dollar and strong oil, those two factors always make gold very strong, said Frank Holmes, CEO of U.S. Global Investors Inc in San Antonio, which manages about $5 billion of assets in mutual funds.

Spot gold rose as high as $753.60 an ounce -- its highest since January 1980 -- and was quoted at $750.40/751.20 at 2:15 p.m. EDT, up from $738.80/739.60 late in New York on Wednesday.

COMEX floor traders in New York also cited trade-related buying and technical chart-based support as spot gold surged above key resistance level of $747.50 an ounce.

Platinum breached $1,400 an ounce for the first time on Thursday. It was last quoted at its record-high of $1,407/1,412 an ounce, up sharply from its Wednesday finish of $1,381/1,388 in the U.S. market.

Dealers cited worries over supply in South Africa due to power outages and rising rates of interest charged on borrowing the metal.

South Africa's Anglo Platinum, the world's biggest producer, said that two of its smelters were affected by power outages.

Market watchers said the metal, used in auto catalytic converters and to make jewelry, was well positioned for further gains with support from the supply/demand outlook and fund interest.

Holmes cited robust autocatalyst demand for platinum and palladium as countries including India and China were pushing for clean air policies.

We continue to believe that platinum is a relatively safe place to hold precious metals exposure; any liquidation in gold will tug platinum lower but positioning is less extreme in platinum compared to gold and supply and demand fundamentals (are) superior, UBS said in a note to clients.

Ralph D'Esposito, a NYMEX floor trader at RJ Futures, said that platinum's rally was fueled by trade buying and strong supply-demand fundamentals.

Yet D'Esposito said he expected any liquidation in palladium, whose recent rally was mainly driven by fund speculation, could be a lot heavier than platinum.

Palladium is going to run a little faster to the upside because the funds are buying. As soon as they get out, you are not going to find the bottom, he said.

Palladium was last traded at $377/381 an ounce, up from $372.50/376.50 late in New York on Wednesday.

MOMENTUM BUILDS

The euro gained for a third straight day against the dollar on Thursday as markets worried the U.S. Federal Reserve would slash interest rates again to boost the economy.

Gold was also reaping benefits from rising oil that boosted its role as a hedge against oil-led inflation. U.S. crude surged more than 2 percent to finish at $83.08 a barrel, after a surprise decline in the U.S. inventories stirred concern about supplies in the United States ahead of winter.

On the supply front, South African gold output fell 4.9 percent in volume terms and overall minerals production fell 3.1 percent in August compared with the same month the previous year, official data showed

The benchmark August 2008 gold contract on the Tokyo Commodity Exchange finished up 14 yen or 0.5 percent at the day's peak of 2,836 yen, the highest for any TOCOM gold benchmark since March 1985.

Silver also rose to $13.71/13.76 an ounce from its previous close of $13.53/13.58.

(Additional reporting by Atul Prakash in London and Miho Yoshikawa in Tokyo)

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