* Dollar retreats after hitting two-year high vs euro
* Oil slides more than $2 a barrel on demand fears
* Platinum slips sharply as firm dollar adds to demand fears
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Oct 27 (Reuters) - Gold pared losses on Monday as
the dollar retreated from highs against the euro, but strength
in the U.S. currency is likely to keep the metal under pressure.
Gold slipped more than 3 percent to a session low of $706.10
earlier as the surging dollar dented the precious metal's appeal
as an inflation hedge, and weakness on the equity markets
prompted selling of gold to meet margin calls.
Spot gold <XAU=> had recovered to $726.30/728.30 an ounce at
1425 GMT, but was still down from $733.30 an ounce in New York
late on Friday.
In times of turmoil gold is often seen as a stable
investment, but risk-averse buyers are increasingly choosing
cash, especially the dollar and yen, as a haven from risk.
"Gold hasn't really had any safe haven attraction because
the dollar has held up well," said Fairfax analyst Marc Elliott.
"Unless the dollar weakens significantly, there is no near-term
likelihood for gold to perform."
The dollar rose on Monday to a two-year high against the
euro, before paring gains in later trade.
European shares also recovered after hitting 5-1/2 year
lows, echoing a slide in Asia prompted by a surging yen, as
investors feared a flurry of Central Bank action would fail to
ward off a global recession. []
Gold has come under pressure as funds liquidate their
bullion holdings to cover losses elsewhere.
Traders are now turning their attention to the two-day
meeting of the U.S. Federal Reserve Open Market committee on
interest rates beginning on Tuesday.
The FOMC is expected to cut overnight lending rates by 50
basis points in response to financial turmoil. With the economic
outlook still murky, gold is expected to remain unsettled.
VOLATILE
"Volatile movement in precious metals is expected in the
coming week as a result of instability in the financial
market coupled with strengthening of dollar against euro," said
research group Epitome Global Services in a note.
"But, gold is expected to see some buying due to the ongoing
festive season in India, the largest consumer of gold," it said.
Good demand for gold jewellery was seen over the weekend in
India, the world's largest gold market, due to the Dhanteras
festival on Sunday. However, sales are expected to slow after
Diwali on Tuesday, traders said. []
Traders are also worried about the prospect of gold sales by
exchange-traded funds. ETFs, which issue securities backed by
physical bullion, are major holders of gold.
The UK's ETF Securities said it saw an outflow of 117,000
ounces of gold from its Physical Gold <PHAU.L> exchange-traded
commodity last week. []
Among other precious metals, platinum tumbled almost 7
percent to a session low of $732.50 as the firmer dollar added
to fears over weakening demand from carmakers, who account for
around half of global platinum consumption.
"We view the price slump of platinum metals as a huge
exaggeration, which is set to continue on the back of the
persisting inflow of bad news from the automobile industry,"
said Commerzbank in a research note.
Spot platinum <XPT=> later recovered to trade at
$750.50/780.50 an ounce against $788.50 in New York late on
Friday. Its sister metal palladium <XPD=> edged down to
$164.50/174.50 an ounce from $167.
Silver <XAG=> tumbled in line with gold, shedding more than
6 percent to its session low of $8.70 an ounce, before
recovering to trade at $8.98/9.08 against $9.30 an ounce.
