* Dollar rally versus euro hurts gold
* Oil dip to 4-1/2-year low below $34 a barrel also hits
* Loan deal for U.S. automakers keeps pressure on gold
(Updates with New York prices, comment. Adds US auto deal)
By Carole Vaporean
NEW YORK, Dec 19 (Reuters) - Gold dropped nearly 3 percent
on Friday as the dollar charged higher against the euro and
crude oil tumbled to a 4-1/2-year low.
Though the yellow metal later trimmed its steep losses, the
upside was capped by the implications of a stronger economy
after U.S. carmakers received word of the White House's plan to
provide them with a government loan.
Spot gold <XAU=> fell to a session low of $829.10 an ounce
but trimmed some of its losses to $836.75 an ounce by late
Friday business in New York from $855.30 an ounce on Thursday.
February gold futures <GCG9> finished $23.20 lower, a 2.70
percent decline, at $837.40 an ounce on the COMEX division of
the New York Mercantile Exchange. It slid as low as $830.10, a
level last seen on December 15, from a high at $854.90.
"I think it was hit mostly by the dollar when the ECB,
yesterday, cut the deposit rates, it really shows they're
acknowledging that they have credit problems," said MF GLOBAL,
precious metals and energy analyst Tom Pawlicki.
"And then when you throw in the partial auto bailout the
automakers got today, it really argues for a higher dollar
going forward. That could be a negative for gold," he added.
Gold prices initially pulled up from early lows after an
official announced the White House would make loans available
to ailing auto manufacturers from the Troubled Asset Relief
Program, traders said.
But once participants saw the bailout plan may eventually
restore growth to the U.S. economy, some gold investors unwound
their safe haven plays, traders added.
"I think the bailout itself is a negative for gold because
as we get in a position to take more risk and looking at the
(U.S.) economy as not being as bad as previously anticipated it
could be a negative for gold," Pawlicki added.
The U.S. government offered up to $17.4 billion in loans to
ailing U.S. automakers and said it expected General Motors
<GM.N> and Chrysler to access the money immediately.
[]
Then, President George W. Bush said the government will
provide U.S. automakers financial aid or their collapse could
send the economy into deep and long recession. [].
Earlier, the euro fell broadly as traders locked in profits
from the currency's rally to a 2-1/2-month high against the
dollar and its strongest level ever against sterling.
Bullion rallied to a two-month high of $881.20 this week,
boosted by the gains in the euro, which had been on track to
post a weekly rise of more than 5 percent against the dollar,
its biggest since the single currency was launched in 1999.
Gold tends to move in the opposite direction to the dollar
as a strong U.S. currency makes gold more expensive for local
currency holders.
"We are going to be bouncing around the range but the
tendency is towards the downside for gold," Tom Kendall,
precious metals strategist at Mitsubishi.
Crude oil's sharp decline was also pressuring bullion.
Oil fell below $34 on Friday to its lowest level in 4-1/2
years years as the global economic slowdown overshadowed OPEC's
record supply cuts. []
"There is strong support between $800 and $810 and it looks
as if, barring any more external shocks, gold will finish the
year in the area of $850, on a level with the start of 2008,"
Societe Generale said in a research note.
NOT IMMUNE
Despite gold's impressive 20 percent rally in December
alone, some thought the outlook remained bearish.
"The economic outlook is as bad as it has been at any time
in the past 100 years. Gold cannot be immune to this," Fortis
Metals said in a research note. "It will be hit by a decline in
jewellery demand, at least of the adornment variety."
Local jewellers in Dubai's traditional gold markets said
this week that sales had collapsed as much as 80 percent in the
last couple of weeks. []
Spot platinum <XPT=> was at $846.50 an ounce versus $849.50
while spot palladium <XPD=> was firmed to $175.50 an ounce.
Silver <XAG=> fell to $10.82 from $10.93.
(Additional reporting by Humeyra Pamuk in London; Editing by
Christian Wiessner)
