* Oil down over $1 on demand fears
* Dollar rally continues
* Physical buying cushions falls
(Updates throughout, pvs SINGAPORE)
By David Sheppard
LONDON, Sept 3 (Reuters) - Gold fell more than 2 percent on
Wednesday, dropping back beneath $800 an ounce as strength in
the dollar and a drop in oil prices continued to weigh on
investor sentiment.
With the dollar soaring to an 11-month high and oil prices
continuing to decline, the metal's appeal as an alternative to
the U.S. currency and as a hedge against fuel-led inflation has
been diminished.
Gold <XAU=> was trading at $795.55/796.55 an ounce as of
0957 GMT, down from $804.90/806.25 an ounce late in New York on
Tuesday. Gold has fallen by around $40 an ounce in less than a
week.
"There's definitely a lot of negative sentiment towards gold
at the moment, due mainly to the dollar's strength," said
Standard Bank analyst Walter De Wet.
"Given the strength of the dollar's rally, gold's actually
holding up quite well, as we're seeing better physical demand,
but ultimately investment demand still dominates in terms of
physical holdings."
Gold struck a nine-month low around $773 in mid-August, and
although it briefly rallied, the metal has come under increasing
pressure as the dollar has clawed back over 16 cents against the
euro since its all-time low of $1.60 seen in July.
Lower prices have attracted buying before the festive season
in main consumer India, where gold imports in August jumped 45
percent from a year ago. []
Key markets Turkey and Dubai have also reported strong sales
in August. Analysts said the drop in gold prices has released a
surge of pent-up buying which was thwarted by record prices
earlier in the year. [] []
"There is no doubt in our minds that gold market
fundamentals are extremely supportive for the metal at the
moment, but that doesn't matter for as long as the dollar is
strong," UBS analyst John Reade said in a note.
"We hold our one and three month forecasts of $850 and $900
an ounce but acknowledge that this will require the dollar to
weaken somewhat and probably for the oil price to stop falling."
PLATINUM DEMAND WOES
Dollar strength has weighed on other precious metals,
already under pressure from falling demand.
Spot platinum <XPT=> slipped to $1,383.00/1,395.00 an ounce
from $1,392.00/1,412.00 late in New York.
Worries about falling demand for autocatalysts, a slowing
U.S. economy and profit-taking have dragged down platinum by
around 40 percent from its record high of $2,290 an ounce back
in March.
Autocatalysts, used to clean exhaust fumes, account for more
than 50 percent of global demand.
"Tonight we have vehicle sales figures in the U.S. So maybe
platinum will want to look out for that one. After yesterday's
decline I think we could see a bit more downside," said Phillip
Futures analyst Adrian Koh.
Automakers may post a 10th consecutive month of U.S. sales
declines as incentives on slow-selling trucks and SUVs and
General Motors Corp's <GM.N> employee pricing promotion failed
to ignite demand from consumers in August. []
Platinum's sister metal palladium <XPD=> eased to
$283.50/291.50 an ounce from $285.50/293.50. Silver <XAG=>
dropped to $12.71/12.77 an ounce from $13.04/13.10.
(Reporting by David Sheppard; editing by Michael Urquhart)
