updated 5/17/2006 10:36:49 AM ET 2006-05-17T14:36:49

Gold prices rallied above $700 an ounce Wednesday as buyers charged back into the market following an abrupt dip.

Major Market Indices

Gains in crude oil prices also drove buyers to gold as a hedge against inflation.

During the European afternoon, gold for June delivery rose $17.60 to $710.5 an ounce in electronic trading on the New York Mercantile Exchange after going as high as $720.00. It had gained $7.90 Tuesday to settle at $692.90 an ounce after falling about 4 percent Monday.

Spot gold traded at $713.00 in London and at $712.00 in Zurich at late morning.

After Monday’s sharp pullback in Europe and North America, Tokyo-based precious metals contracts hit their daily loss limits Tuesday, leaving around 1.5 million ounces of pent-up selling, traders said.

But the metal’s rebound overnight tempered selling interest in Japan Wednesday and bargain-hunters snapped up the metal, betting it would continue to climb.

Last Thursday, gold soared to a 26-year high above $730 an ounce amid concern about the weakening dollar and Iran’s face-off with the West over its nuclear program.

Analysts and traders expect the recent sharp price movements to continue over the coming sessions as large hedge funds push prices around in thin conditions.

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