(Rreuters - New York) Gold ended lower on Wednesday as a sharp rise in the dollar prompted investors to take profits, but strong oil prices limited declines.

Spot bullion traded as high as $881.05 an ounce earlier in the day, but was at $870.85/872.05 by New York's last quote at 2:15 p.m. EDT (1815 GMT), against $877.40/878.60 late in New York on Tuesday and a record high of $1,030.80 on March 17.

"Profit-taking is driving things ... but the market is holding because of oil, which has been hitting a new record every day," said Adrien Biondi, global head of precious metals at Commerzbank.

U.S. gold futures for June delivery GCM8 on the COMEX division of New York Mercantile Exchange settled down $6.50 at $871.20 an ounce.

"The next support level (for the June contract) will be between $851 and $853, but I don't think it's going to happen though. You have to see the dollar up sharply to get there, I think," said Jossen.

On Wednesday, the dollar gained broadly on the back of hawkish comments from a Federal Reserve official and weak retail sales data in the euro area, weighing heavily on gold.

A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand.

Oil prices rose nearly $2 to over $123 a barrel, extending further into record territory on supply worries, boosting gold's appeal as a hedge against inflation. U.S. crude CLc1 ended up $1.69 at $123.53 a barrel.

All eyes were trained on the European Central Bank, which at a meeting on Thursday is expected to hold interest rates steady at 4 percent.

"Tomorrow's ECB rate-setting meeting might reverse the euro/dollar move, but another test of downside support around $850 now appears more likely for gold in the short-term rather than a push to $900," said Tom Kendall, metals strategist at Mitsubishi Corp.

The recent disconnect between the price of gold and oil means that weakness in the price of crude is not a prerequisite for a sell-off in bullion."

Some analysts said gold would look at other markets for short-term direction.

"Should oil stabilise or slip back, then we would expect gold prices to ease in the coming weeks. However, any weakening of the dollar or severe escalation in oil prices would quickly result in high gold prices," investment bank Fairfax said in a report.

Gold held in StreetTRACKS rose to 584.44 tonnes from 580.45 tonnes last week but this was still down from a record of 663.83 tonnes in mid-March.

Still, other analysts said some investors pulled out of gold on Wednesday to allocate more funds to asset classes such as equities.

"Specs are thinking new markets and some liquidation of positions...people are taking some cash out to put it elsewhere," said Biondi from Commerzbank of the intraday price move.

In other markets, gold futures for June delivery GCM8 on the COMEX division of the New York Mercantile Exchange fell $9.3 an ounce to $868.30 an ounce.

Spot platinum steadied at $1,950.00/$1,970.00 an ounce from $1,947.50/1,967.50 late on Tuesday, while silver fell to $16.57/16.63 an ounce from $16.84/16.91. Palladium fell to $417.00/425.00 an ounce from $427.50/435.50.

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