* Oil down over $1 on demand fears
* Dollar rally continues
* Physical buying cushions falls
(Recasts, updates throughout)
By David Sheppard
LONDON, Sept 3 (Reuters) - Gold pared early losses on
Wednesday to rise back above $800 an ounce, on strong physical
buying by jewellers lured by recent price falls.
Early on Wednesday, gold <XAU=> had dropped to a two-week
low of $789.05 an ounce due to a strong dollar and weak oil
prices, before bouncing back to $803.00/804.20 an ounce at 1405
GMT from $804.90/$806.25 in late New York trade on Tuesday.
"Anytime the price goes below $800 an ounce it rekindles
physical interest from jewellers and other buyers," said Calyon
analyst Robin Bhar.
"Consumers see these levels as very attractive, so I don't
think these support levels should be seriously violated unless
the dollar continues to strengthen significantly."
Strength in the dollar and a drop in oil prices has dampened
the appeal of gold for investors, with the precious metal
falling from almost $980 an ounce back in mid-July.
With the dollar soaring to an 8-month high against the euro
on Wednesday and oil prices falling towards $108 a barrel, the
metal's appeal as an alternative to the U.S. currency and as a
hedge against fuel-led inflation has been diminished.
"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, but ultimately investment demand still
dominates in terms of physical holdings."
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.
Some analysts think that gold could be in for a period of
consolidation, with physical buying underpinning the price while
investors wait to see if the dollar's rapid recovery can be
sustained.
PLATINUM DEMAND WOES
Spot platinum <XPT=> consolidated at $1,394.50/1,414.00 an
ounce, having traded at $1,392.00/1,412.00 late in New York on
Tuesday.
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.
Automakers may post a 10th consecutive month of U.S. sales
declines on Wednesday as incentives on slow-selling trucks and
SUVs and General Motors Corp's employee pricing promotion failed
to ignite demand from consumers in August. []
Platinum's sister metal palladium <XPD=> eased to
$282.00/290.00 an ounce from $285.50/293.50. Silver <XAG=>
dropped to $12.82/12.90 an ounce from $13.04/13.10.
(Reporting by David Sheppard; editing by Michael Urquhart)
