A roaring rally in precious metals persisted on Wednesday as a weaker dollar and firmer oil pushed gold and silver to 25- and 23-year highs respectively and lifted platinum to a record peak.

The rally has been driven by inflation worries, political tensions in the Middle East and instability in currency markets, and dealers saw nothing to suggest the trend could be reversed in the near term.

Oil has been a key driver because it's a big part of the commodity baskets like Goldman Sachs index. Oil is making these baskets perform, which is making people buy the baskets, said Jon Bergtheil, global metals strategist at J.P. Morgan.

Spot gold spiked to $626.75 an ounce, the highest since December 1980, before dropping to $625.10/625.90 by 1230 GMT. It closed in New York at $620.20/621.00 late on Tuesday.

Oil held above $72 a barrel on fears Iran's intensifying dispute with the West over its nuclear aims might lead to supply cuts from the world's fourth-largest exporter.

A weaker U.S. dollar, which hit a seven-month low against the euro , was contributing to interest in gold.

It's a sentiment-driven market, MKS Finance analyst Frederic Panizzutti said, adding that the market had become over-bullish.

Gold rose in other currencies too, with prices jumping to a record high of 507.86 euros and hitting a two-decade high of 351.14 sterling .

Precious metals have soared in the past year and outpaced other assets, with silver gaining 103 percent, gold 47 percent and platinum 30 percent.

In the past 12 months, the Standard and Poor's 500 index <.SPX>, an indicator of U.S. equity performance, rose about 14 percent, while the Dow Jones industrial average <.DJI> gained 12 percent. The dollar against the euro was up by 5 percent.

Further strength in the metals appears likely, said John Reade, analyst at UBS Investment Bank.

Gold, which has risen 21 percent this year and doubled in about three years. The price boom has attracted new money into the market, dealers said.

SILVER SPIKES

Silver gathered momentum from the bullion rally and on speculation that a proposed exchange-traded fund would boost physical demand.

Spot silver rose to $14.27 an ounce, the highest in 23 years, and was later quoted at $14.22/14.25, compared with $13.91/13.94 in the U.S. market.

Platinum hit a new record at $1,121 an ounce before inching down to $1,118/1,122. It closed in New York at $1,111/1,116 on Tuesday.

In industry news, the world's third-biggest platinum producer Lonmin Plc said it expected to restart its biggest furnace this week after closing earlier this month due to a leak. [ID:nWLB7892]

Palladium rose to $371 an ounce, the highest since August 2002, but later dropped to $366/370.

In other markets, base metals hit new highs as benchmark London Metal Exchange copper futures crossed $6,500 a tonne in Asian morning trade and zinc and aluminium futures surged upwards. [ID:nSHA14342] (Additional reporting by James Regan in Sydney)

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