* Dollar rallies to 1-1/2 year high vs euro
* Oil slips $3/bbl as investors fret over demand
(Updates throughout, adds comment)
By Jan Harvey
LONDON, Oct 21 (Reuters) - Gold tumbled nearly 4 percent on
Tuesday as the dollar rallied to a 1-1/2 year high against the
euro, denting the precious metal's appeal as an alternative
investment, and oil prices slipped $3 a barrel.
Spot gold <XAU=> was quoted at $767.00/769.00 an ounce at
1304 GMT, down from $795.00 an ounce late in New York on
XMonday. Earlier it touched a session low of $764.20.
After several weeks of buffeting by 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 market is more focused on euro/dollar again," said
Commerzbank senior trader Michael Kempinski. "The stock market
has made back some of its losses so safe-haven buying is over
for the time being."
The dollar 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 currency's recovery has been fuelled by demand from
banks for funding, and as investors unload highly leveraged
positions. []
"Prices (are) moving in response to dollar and oil price
moves, although a number of participants are envisaging
continued weakness due to deflationary pressures," noted John
Meyer, an analyst at Fairfax.
Fears over demand are weighing on all industrial
commodities, with prices of oil and copper around 50 percent
below their all-time highs. If commodity prices fall it is
likely to dent demand for gold as an inflation hedge.
Oil slid around $3 a barrel on Tuesday, pressured by
expectations a global recession will cut demand for oil.
Crude had benefitted on Monday from expectations that oil
cartel OPEC will cut production at its emergency meeting in
Vienna on Friday.
It 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
in July.
"If (OPEC) decides to go ahead and cut production, that
should boost the oil market and could help precious metals,"
said Afshin Nabavi, head of trading at MKS Finance in Geneva.
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
Nabavi. "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.
North American Palladium <PDL.TO> said on Tuesday it is
temporarily closing its Lac des Iles mine due to falling metals
prices, but said it believes the mid-term outlook for platinum
and palladium is "quite positive". []
The company produces around 4 percent of the world's
palladium, it said.
Spot platinum <XPT=> was trading at $871/891 an ounce
against $893 an ounce on Monday, while palladium <XPD=> was at
$178/186 an ounce against $178.50.
Silver <XAG=> was steady at $9.74/9.82 an ounce from $9.75.
(Reporting by Jan Harvey; editing by Peter Blackburn)
