LONDON, Jan. 2, 2008 (Thomson Financial delivered by Newstex) -- Gold prices reached a new all-time high above 848 usd an ounce in early afternoon trade, buoyed by weakness in the US dollar, and look set to challenge their all-time high of 850 usd an ounce.

Price movements are likely to have been somewhat exaggerated by the lightness of holiday trade, analysts said.

'Although conditions remain on the thin side as part of the trade will not return until Monday, the move suggests that funds may have made additional moves into bullion with Pakistan remaining on edge and investors nervous about financial markets,' said Kitco Bullion Dealers' analyst Jon Nadler.

'A sharp rise in crude oil... and a softer US dollar ahead of the ISM data for last month contributed to the metal's successful attempt to break out towards higher ground,' he added.

At 2.04 pm, gold was trading at 846.20 usd, up from the 834.50 usd it reached in late New York trade on Monday. Earlier in the session it touched a fresh 28-year high of 848.43 usd.

Weakness in the US dollar has been a key factor in the precious metal's rally, boosting gold's appeal as an alternative investment and making it cheaper for holders of other currencies.

Strength in oil prices is also underpinning the metal's gains, while some buying has also been encouraged by geopolitical tensions following the assassination of Pakistani opposition leader Benazir Bhutto last week.

With prices having remained firm above 800 an ounce over the holiday period, investors are now gearing up for the metal to break through its all-time high of 850 usd an ounce, set in January 1980.

These expectations may be giving the precious metal some momentum of their own, adding to the push upwards, analysts said.

'We are close enough to an all-time high for there to be some anticipatory momentum buying around,' noted UBS (NYSE:UBS) analyst John Reade.

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