NEW YORK, July 21: Gold rallied to a 10-week high on Friday, capping a week with solid gains, fueled by renewed fund buying, a weakening dollar and as investors sharply increased holdings of bullion held by gold exchange-traded funds (ETF).

Analysts said that gold was poised to retest the psychological $700 level in the near term because of a combination of bullish factors including firm energy prices and improving jewelry demand.

Other precious metals also advanced, with platinum hitting a two-month high, silver rising to its highest level in six weeks and palladium increasing to a two-week high.

Gold rose as high as $686.00 an ounce, the highest since May 9, and was quoted at $682.50/683.30 compared with $677.30/678.10 late in New York on Thursday.

In the intermediate term, it looks like the market is a little overbought, but today's rally pushes through that argument and put it more to a long-term trend towards $700, Oxman said.

Gold has attempted several times to break above the $700 level, and retest the 26-year peak at $730 set in May 2006, but so far has failed this year.

Further weakness in the dollar might lift gold to new highs, but a recovery in the currency might prompt profit-taking and push the metal down toward $640 an ounce, dealers said.

I am cautious as recent gains have been made purely on a dollar weakness. The price movement is not artificial, but too much dependence on one factor is not healthy, said Matthew Turner, precious metals analyst at Virtual Metals.

Gold will be driven by the dollar, but if the currency doesn't move, then it might come back on profit taking.

US gold futures have rallied more than $35, or nearly 6 per cent, since it closed at $650.60 on July 5.

Changes in gold and silver ETF holdings are closely watched by market participants because sharp inflows in gold ETFs could be a bullish signal as it shows longer-term retail investors are entering the market.

In other precious metals, platinum has been supported by wage negotiations in South Africa, the world's largest producer.

The world's biggest platinum producer, Angloplat, will hold further wage talks with South Africa's biggest mining union next week after it did not file a dispute as expected.—Reuters