Gold prices rallied to record highs for a third successive session in Europe on Thursday, as persistent weakness in the dollar fueled fund buying of the metal as an alternative to the U.S. unit.

Gold's gains lifted other precious metals, with silver reaching its strongest level since July 2008 and palladium hitting a 13-month peak.

Spot gold rose to $1,054.30 an ounce at 0926 GMT against $1,043.70 late in New York on Wednesday. Earlier it touched a record high of $1,058.20 an ounce.

The dollar just continues to weaken and that's the main driver of gold, said Citigroup analyst David Thurtell.

I'd be surprised if we didn't see a fair bit of scrap coming out of the woodwork, and the indications are that Indian demand will be very poor at these high prices. But it seems there are enough investors who are happy to buy it to more than offset that.

He said the precious metal could rally as high as $1,200 an ounce before the market saw a significant correction.

The dollar index <.DXY> weakened on Thursday after strong jobs data sent the Australian dollar higher, with an upbeat U.S. corporate earnings report fuelling investor demand for higher risk and yield currencies.

The euro rose to $1.4767. Currency traders are awaiting the outcome of European Central Bank and Bank of England policy meetings concluding on Thursday.

Other hard commodity prices rose, with crude oil climbing back above $70 a barrel. Gold is often seen as a hedge against oil-led inflation.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $11.60 to $1,056.00 an ounce.

GOLD ETF SEES INFLOWS

Demand for gold-backed exchange-traded funds edged higher after waning over the summer months, with the largest, New York's SPDR Gold Trust, reporting a fourth straight day of inflows on Tuesday.

Investors in the fund bought nearly 14 tons of gold, lifting its holdings 1.3 percent, in the week to Tuesday. Buying by funds and larger investors is driving the current rally, traders said.

It is pretty much all a fund and investor driven rally, said senior Commerzbank trader Michael Kempinski Those guys like to buy at the highs and have the power to push it through.

Indian jewelry buying trickled in ahead of the key festival of Diwali on October 19, though the recent price rally is deterring some buyers. Jewelry demand in the country, the largest consumer of gold last year, has been weak in 2009.

Among other precious metals, silver rallied to a 14-month high, lifted by gains in gold and also benefiting, as an industrial metal, from rising optimism over the outlook for the global economy.

Spot silver was at $17.76 an ounce against $17.55, having earlier touched a high of $17.89 an ounce.

Silver will continue to look to gold for direction in the coming sessions, but having cleared last month's high... (it) will now look to target chart highs from last April/May between $17.92-18.34, said TheBullionDesk.com analyst James Moore.

Platinum and palladium, primarily used in autocatalyst production, also rose in gold's wake. Platinum was at $1,333 an ounce against $1,043.70, while palladium was at $314 against $311. Earlier it hit a 13-month high of $315.50.

(Reporting by Jan Harvey; Editing by Sue Thomas)

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