LONDON, Jan 24: Gold drifted lower on Wednesday after trading just below a seven-week high, pressured by a rise in the dollar and weaker oil, but sentiment remained strong.

Dealers said the metal had potential to breach a key level of $650 an ounce in the coming days, which might lift prices of other precious metals to new highs.

Platinum rose to its highest in two months before falling, silver eased after a six-week high and palladium matched Tuesday's peak of $348, its highest in four months.

The sentiment in the market is still very positive and physical gold activity should be sound below $640. There is great potential to try again to break the $650 level, Frederic Panizzutti, precious metals analyst at MKS Finance, said.

We are trading in a wide range of $630-$650. The market around these levels are pretty unstable but we believe that we are in a bull trend. Spot gold hit a high of $647.10 an ounce before slipping to $643.70/644.70 at 1106 GMT, against $646.00/647.00 in New York late on Tuesday, when it rose touched $647.50 -- the highest since Dec 5.

The dollar rose marginally against the euro, while oil fell below $55 a barrel, paring gains made in the previous session's sharp rally. Gold prices often fall with a rise in the dollar as the metal becomes costlier for holders of other currencies. Gold is also seen as a hedge against oil-led inflation.

In other precious metals, silver rose to $13.25, its highest since mid-December, before easing to $13.20/13.27, versus $13.21/13.28 late in New York.

At this stage, other precious metals are tracking gold. But we expect silver to catch up in the coming few days and weeks and we will not be surprised if silver moved above $14, said Panizzutti of MKS Finance.

We are pretty positive for silver this year. We expect more inflows into exchange-traded funds and silver to trade more like a financial asset rather than purely an industrial commodity. Palladium matched its highest more than four months of $348. It was last quoted at $344/349, against $347/352 in the US market.

Platinum rose to $1,177 an ounce, its highest since early December, before easing to $1,163/1,168, versus $1,170/1,175 in New York.

Industry players remained positive towards the metal, mainly used to clean car exhaust fumes and to make jewellery.

British platinum specialist Johnson Matthey Plc said the outlook for its full-year results was good given trading during its second half was progressing well.

Catherine Ling, China director of Platinum Guild International, said China's fast-growing platinum jewellery market was expected to expand sharply in the next five to 10 years as a new wave of baby boomers got married.—Reuters