Updated from 1:20 p.m. EDT

Metals prices remained supported by geopolitical tensions on Wednesday, even as crude oil prices dipped from seven-month highs following bearish U.S. inventory data.

Crude oil dropped 36 cents to $68.62 a barrel after a report showed U.S. inventories jumped to their highest level in almost eight years.

Crude earlier touched $69.60, near levels unseen since Hurricane Katrina disrupted Gulf Coast production in September 2005. The gains came as tensions between the U.S. and Iran remained high after Tehran said it had begun enriching uranium on Tuesday.

Gold, meanwhile, was still acting as an inflation hedge in the face of soaring energy costs and as a safe haven amid geopolitical jitters. It also received a bid following a bullish industry survey.

Gold for June delivery rose $1.90 to $601.3, off a morning high of $604.0. The June contract rose to a 25-year high of $608.40 on Tuesday before closing in the red.

The advance in metals was again led by copper and silver. Copper rose 5 cents to $2.7715 a pound, after touching yet another all-time high at $2.80. Silver gained 6.3 cents to $12.66 an ounce, off a morning high of $12.765.

In its Gold Survey 2006, released Wednesday, London-based metals consultancy GFMS predicted that the price of gold should see further "hefty gains" over the next year or two, and that the 1980 high of $850 "could even be taken out."

"For 2006, the chief drivers of investment were expected to remain the high probability of a sharp slowdown in U.S. economic growth and a slide in the dollar," GFMS wrote in the report.

On Wednesday, however, the metals' advance occurred despite a rising dollar. The dollar advanced vs. the yen and the euro after news that the U.S. trade deficit narrowed by $2.8 billion in February. A stronger greenback normally lowers the value of dollar-denominated commodities.

But metals bulls believe a lower dollar remains in the cards for 2006 amid expectations that the

Federal Reserve

will soon stop raising interest rates. A rising dollar in 2005 had little impact on the price of gold and of other commodities, which soared through last year.

GFMS said that the global supply and demand picture looks less bullish than it did last year, when jewelry demand for gold rose 100 tons while new supply remained tame. In 2006, however, weaker demand from the likes of India will combine with rising supply as new mining projects get underway.

However, the consultancy predicted that gold should remain supported by tensions in the Middle East, soaring energy prices, as well as new buying interest from the likes of pension funds and central banks.

Besides soaring energy prices and geopolitical tensions, metals have indeed received strong support from a flurry of investment money from hedge funds, institutions and retail investors in recent weeks.

New headlines about gold and metals are found in the media everyday, which is not necessarily bullish for the near term.

"Sentiment is getting too bullish," says Peter Grandich, metals analyst and editor of the

Grandich Newsletter

. "People that weren't involved

in metals are now getting in with both feet, which is almost always a sign that a top is near."

While oil and geopolitical tensions are still providing support, several factors could trigger a correction for the metals: Once the spot price of gold (which finished at $598.0 an ounce on Wednesday) tops $600 or the much-awaited silver exchange traded fund (ETF) receives regulatory approval, a 10% correction could occur for most metals, Grandich says.

For Chintan Karnani, metals analyst with Delhi, India-based Insignia Consultants, the simple trigger for a pull-back in gold will be crude oil. "Once crude oil risks subside even for the short term, gold will fall," he wrote in his daily commentary.

Few gold analysts, however, believe that gold's bull run will stop there. Grandich, for one, believes that after a short pull-back, gold will recover and head toward $700 an ounce, perhaps by late summer.

Silver may or may not keep its appeal after the ETF launch, while base metals are vulnerable if a slowing U.S. economy acts as a drag on global growth later this year, Grandich says.

"I would use further strength in base metals to pull out and move into precious metals," he says.

Meanwhile, shares of metal miners broke finished sharply higher. The Philadelphia gold and silver index finished up 2.4%, the Amex Gold Bugs index rose 3.2%, and the CBOE Gold index advanced 2.2%.

Among the biggest gainers,

Gold Fields

(GFI) - Get Report

rose 5.4%,

Gold Star Ressources

(GSS) - Get Report

gained 4%, and

Hecla Mining

(HL) - Get Report

advanced 3.9%.

Coeur D'Alene Mines

(CDE) - Get Report

rose 4.2 %. On Monday, Coeur D'Alene said it reached a deal to sell its unit Coeur Silver Valley

U.S. Silver Corp

for $15 million in cash.

Wednesday's gains in mining stocks were maintained through the close, unlike the past three sessions when an early advance vanished in the final hours of trading. "A lot of the institutions that used to buy mining shares have now switched to the ETFs," adding volatility to the shares of mining companies, Grandich says.

The

streetTRACKS Gold

(GLD) - Get Report

ETF finished up 0.7% on Wednesday. The ETF has risen over the past five trading sessions, while the mining stock indices are down from last Wednesday's closing levels.