Gold hit a new 25-year high in volatile trade on Wednesday on fund buying, driven by firm oil and worries about Iran's nuclear plans, but fell more than one percent from its peak as investors took profits.

Silver also had a roller-coaster ride, moving closer to a 23-year peak, but then fell 8.5 percent, mainly on an erratic dollar.

Other precious metals also made gains, but had trouble holding onto them.

"It's a very hot market at the moment. The long-term bull market in commodities is probably intact but the short-term picture is dangerous," Sean Corrigan, Switzerland-based chief investment strategist at Diapason Commodities Management, said.

The market was becoming vulnerable to a sharp correction with every move higher, he said.

Gold rose as high as $676.30 an ounce, the highest since October 1980, before falling to $660. It was quoted at $668.50/669.50 by 1614 GMT, against $666.20/667.20 late in New York on Tuesday. Gold's all-time high was $850 in early 1980.

In euro terms, gold jumped to a record high of 534.88 euros, while it rose to 367.79 sterling, the highest in two decades.

Gold has gained around 30 percent this year as investors diversified into precious metals on global tensions, firm oil prices and uncertainty over the dollar's outlook.

"Given the sharp moves higher over the past few days, the market may be in need of a consolidation," Yingxi Yu, precious metals analyst at Barclays Capital, said.

Oil dropped after trading on Wednesday within sight of record highs, but mounting tension over Iran's nuclear plans continued to worry investors of global supply disruptions.

Iran threatened on Tuesday to attack Israel in response to any "evil" act by the United States and said it had enriched uranium to a level close to the maximum compatible with civilian use in power stations.

Gold is mainly used in jewellery and can be bought as a hedge against inflation and for future sales when holders need cash in times of trouble.

SENTIMENT UPBEAT

"The yellow metal will continue to find support on any dip as ongoing geopolitical concerns, rising oil prices, inflation fears and the weaker dollar continue to fuel the bullish sentiment in gold," Standard Bank said in a report.

The dollar edged up after falling towards a recent one-year low against the euro.

Some mining companies in Britain, Australia and Hong Kong gained following sharp price moves.

Platinum spiked to a record $1,184 an ounce before falling to $1,175/1,180. The metal was quoted at $1,174/1,179 an ounce in New York.

Palladium rose as high as $387 an ounce before retreating to $375/380, against $380/385 in the U.S. market.

Silver fell to $13.30 an ounce after rising as high as $14.53. It was later quoted at $13.85/13.95, compared with $14.22/14.32 in New York and a 23-year peak of $14.68 hit two weeks ago.

Silver has gained 66 percent this year on hopes that an exchange-traded fund would boost demand. The fund, backed by physical bullion, was launched in the United States on Friday after getting regulatory approvals.

John Reade, analyst at UBS Investment Bank, said the silver ETF saw 21 million ounces of demand during the first day of trading and 32 million ounces by the third day.