* Dollar hits 1-1/2 year high vs euro
* Oil slips more than $1/bbl as investors fret over demand
(Recasts, adds comment, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Oct 21 (Reuters) - Gold slipped more than 2 percent
in Europe on Tuesday as the dollar strengthened against the
euro, denting the precious metal's appeal as an alternative
investment, and oil prices eased.
Strong interest in physical investment products such as
coins and bars is supporting prices, however.
Spot gold <XAU=> was quoted at $776.35/778.35 an ounce at
0846 GMT, down from $795.00 an ounce late in New York on Monday.
After several weeks of being buffeted by movements in the
equity markets, which have dictated interest in gold as a haven
from risk, the precious metal is now returning to its usual two
external influences, the dollar and crude oil, say analysts.
"The strength of the dollar is keeping a cap on gold," said
Afshin Nabavi, head of trading at MKS Finance in Geneva.
"The OPEC meeting is also coming up this week. If they
decide to go ahead and cut production, that should boost the oil
market and could help precious metals."
OPEC will meet in Vienna on Friday to discuss changes to its
output quotas, but has already suggested it is in favour of a
cut to boost oil prices, which have halved from the high of
$147.27 a barrel hit in July.
An upturn in the crude market is likely to pull gold in its
wake. The precious metal is often bought as a hedge against
inflation led by oil and other commodities.
On Tuesday oil prices eased by more than $1 a barrel,
however, as investors worried about underlying demand as the
economic slowdown got underway. Similar fears are weighing on
other commodity prices.
If inflation fears subside, gold prices are likely to ease,
analysts said. "A number of participants are envisaging
continued weakness due to deflationary pressures," Fairfax
analyst John Meyer said in a report.
The dollar has also rebounded to a 1-1/2 year high against
the euro, as investors were cheered by Federal Reserve Chairman
Ben Bernanke's testimony to Congress on Monday, during which he
endorsed more government spending to stimulate the U.S. economy.
[]
"The dollar is gaining from perceptions that U.S.
authorities are being much more proactive than their European
counterparts," said Standard Bank analyst Walter de Wet, whose
bank sees the euro at $1.29 in the next three months.
"While we believe the normalisation of money markets should
support precious metal prices as liquidity returns, a strong
dollar would make large price rallies difficult to sustain," de
Wet said.
Physical interest in gold remains supportive, however. The
SPDR Gold Trust, the world's largest gold-backed exchange-traded
fund, said its holdings remain near record levels, despite a
small outflow on Monday. []
Buying of coins, bars and jewellery is also firm.
"Physical demand is very strong, particularly out of the Far
East. For the last couple of days, it has been remarkable," said
Nabavai. "This is providing some good support at lower levels."
Among other precious metals, platinum and palladium were
little changed as traders took a breather after last week's
heavy losses and Monday's recovery.
Spot platinum <XPT=> was trading at $882/902 an ounce
against $893 an ounce on Monday, while palladium <XPD=> was at
$181/184.50 an ounce against $178.50.
Silver <XAG=> edged up to $9.80/9.88 an ounce from $9.75.
(Reporting by Jan Harvey; editing by Peter Blackburn)
