SINGAPORE, Nov. 29 (Reuters) a" Gold topped $500 an ounce in Asia on Tuesday for the first time since December 1987 as dealers said funds had diversified into precious metals on worries about inflation and geopolitical tensions.

Platinum breached the psychological level of $1,000 an ounce, hitting

Spot gold was quoted at $501.50/502.00 an ounce in early afternoon trade, up from $498.20/499.00 an ounce last quoted in New York on Monday. Gold was trading at its highest since Dec. 14, 1987, when it hit $502.97 an ounce.

"People are looking for an alternative investment to US dollar-based instruments (such as bonds). The expectations of inflation in the coming year are very high," said Albert Cheng, Far East managing director for the industry-backed World Gold Council.

But jewellery manufacturers and buyers may need time to adjust to the high prices as bullion has gone up more than 13 percent in value since the start of the year, Cheng said.

"Once they are comfortable with this level, it will not deter people from buying jewellery. People tend to buy more when the price of gold is actually upward," he said.

The council said this month that global demand for gold in the third quarter totalled 838 tons, a rise of 7 percent from the same quarter a year earlier, as surging investment demand helped offset a slowdown from the jewellery sector.

Dealers expected volatile trade for gold as profit-taking was likely to emerge. Dealers noted sales of gold bars, jewellery and scraps across Asia as the metal approached $500.

Gold held above $500 for just one day in December 1987 while it managed to peak at $509 in early February 1983, before falling to around $340 by the end of that year. It hit a record high of $850 an ounce in January 1980.