Gold prices hit a 28-year high on Thursday, a hair's breadth away from the key $800 mark, stoked by a tumbling dollar, record-high oil and inflation concerns.

Prices eased later with a marginal recovery in the dollar, but sentiment remained bullish and the metal was seen moving towards its lifetime high of $850 next year, analysts said.

Higher oil prices could certainly be triggering inflation concerns in the minds of investors and speculators, said Suki Cooper, precious metals analyst at Barclays Capital.

The two key drivers are continued dollar weakness and oil price strength, and we are forecasting that both would move favorably for gold.

Gold hit a peak of $799.30 an ounce, its highest since January 1980 when it scaled an all-time high of $850. It eased to $792.60/793.30 by 6:56 a.m. EDT, against $791.70/792.50 in New York late on Wednesday.

After adjusting for inflation, gold's lifetime high is equal to $2,079 an ounce at 2006 prices. Prices have jumped 25 percent since the latest rally began in mid-August.

Oil leaped more than 1 percent, briefly topping $96 a barrel for the first time and extending the previous day's 5 percent jump after an unexpected sharp fall in U.S. crude stocks and data showing strong economic growth.

The dollar recovered from record lows against the euro after the Federal Reserve cut rates the previous day, but dampened expectations of further monetary policy easing this year.

The Fed said inflation risks were equal to the possibility of slower growth, prompting the fed futures market to cut bets on a December rate cut to as low as a 40 percent chance.

A weaker dollar makes gold cheaper for other currency holders and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

INFLATION CONCERNS

Philip Klapwijk, chairman of metals consultancy GFMS, said inflation worries and a weak dollar were likely to push gold towards the record high of $850 in the first half of next year.

Inflation is beginning to become a bit more of a concern, particularly in the context of lower U.S. interest rates, he told Reuters in an interview.

We could see negative real-term interest rates in the U.S. next year as the Federal Reserve is likely to cut rates further. This will make gold more attractive.

In other markets, December U.S. gold rose as high as $800.80 an ounce in electronic trade, while October 2008 Tokyo gold futures gained 2.3 percent to finish at 2,983 yen.

You still have quite a strong appetite among the investor and speculative community to take bullish bets on gold. I think that this community is going to be loyal to gold, said Michael Lewis, global head of commodities research at Deutsche Bank.

In news, AngloGold Ashanti, the world's third biggest producer, reported flat third-quarter headline earnings per share after costs rose, undermining a rise in output.

Randgold Resources Ltd posted a 9.8 percent year-on-year fall in third-quarter net profit due to higher costs and a loss on hedge contracts, while DRDGOLD increased first quarter gold output in South Africa by 11 percent to 89,157 ounces.

The world's top gold producer, Barrick Gold Corp, said on Wednesday its third-quarter profit fell 15 percent as lower gold sales and rising costs offset higher gold prices.

Silver fell to $14.34/14.38 from $14.47/14.52 in New York, while platinum rose $3 to $1,444/1,449 an ounce. Palladium was at $371/374 an ounce, versus $369/373.

(Additional reporting by Miho Yoshikawa in Tokyo and Kang Shinhye in Seoul)

Inflation Gold