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LONDON, Apr 12 (Reuters) Gold drifted higher in Europe on Wednesday towards $600 an ounce, with investors buying the metal on price dips on hopes bullion would set new highs in the coming weeks, dealers said.

Prices fell as low as $592.80 as some investors booked profits after the metal reached 25-year highs of $604 in the previous session, but the market then recovered on renewed buying.

''The overall geopolitical environment is still favourable for a further push higher and I don't think speculators have decided that this is enough,'' an analyst in London said.

''We should probably see another push higher above $600 over the next few weeks.'' Spot gold was at $597.00/597.70 an ounce by 1427 GMT, compared with $595.00/595.80 late in New York on Tuesday.

The metal has attracted more support from investors who have diversified their portfolios on worries about firm oil prices, tensions in the Middle East and uncertainties over the dollar's outlook because of the U.S. trade and budget deficits.

At Tuesday's peak gold was up more than 16 percent this year and about 41 percent in the past 12 months.

''With rumours of U.S. military action as a possible response to the defiant Iranian nuclear stand-off, gold should garner an influx of safe-haven seekers who could likely provide a temporary boost to prices,'' Standard Bank said in a report.

U.S. President George W. Bush has dismissed reports of plans for military strikes on Iran as ''wild speculation'', but traders fear diplomatic efforts may falter and any potential sanctions could lead Tehran to disrupt oil supplies.

Oil traded around $69 a barrel, near a record $70.85 hit last year. Gold is often seen as a hedge against inflation.

On Tuesday, Iran proclaimed it had begun uranium enrichment, which it says it will build to industrial-scale for power generation. The United States believes it wants to build a bomb.

''With Iranian concerns becoming more prominent once more, and trading becoming thinner ahead of Easter, volatility around these levels could be expected,'' Julia Hamblett, vice-president at Dresdner Kleinwort Wasserstein, said in a daily note.

BIULLISH MARKET TONE Precious metals consultancy GFMS said gold had tremendous scope to attract more investment that could push prices past a 1980 peak of $850 in the next couple of years due to economic and geopolitical uncertainty. [ID:nL11589341] Other commodities also rallied, with copper and zinc charging to fresh record highs as an influx of new speculative money overwhelmed a brief price fall. [ID:nL12180419] Gold's rally scared off jewellers in Asia, but Yukuji Sonoda, analyst at Daiichi Commodities in Tokyo, said consumers would eventually get used to the high price.

''Maybe, by the end of April or the beginning of May, India, China and Japan will start buying again,'' he said.

Jewellery demand in India, the world's largest consumer, generally surges in the wedding season that peaks in April and May. The metal forms a crucial part of the dowry basket, with parents gifting gold to their daughters for financial security.

Silver hit a low of $12.47 an ounce before rebounding to $12.71/12.74 on fund buying. It closed at $12.62/12.65 in New York on Tuesday, when it touched a 23-year high of $13.01.

Platinum rose to $1,089/1,094 from $1,084/1,088 an ounce in New York, while palladium rose $5 to $345/350.

Russian metals giant Norilsk Nickel said its palladium output rose by 8.4 percent to 775,000 ounces in the first quarter of 2006 from a year earlier. Platinum production was up by 5.7 percent to 184,000 ounces.

REUTERS SBJ HS2051