* Gold slides as funds sells gold and opt for cash
* Dollar rallies to 1-1/2 year high vs euro
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 21 (Reuters) - Gold tumbled as much as
4 percent on Tuesday as a sharp dollar rally dented the
precious metal's appeal as an alternative investment,
triggering a bout of long liquidation by commodity funds.
"With the dollar getting so much stronger, it has made
other investments such as fixed-income and government treasury
products much more attractive," said Rob Kurzatkowski, futures
analyst at optionsXpress.
"Right now a lot of the hedge funds, which have had
supported the bull market in commodities, are largely sitting
in cash positions or testing the water and doing it in a small
scale," Kurzatkowski said.
Spot gold <XAU=> traded at $772.40 an ounce at 3:05 p.m.
EDT (1905 GMT), down 2.8 percent from Monday's close of $795.
Earlier it touched a session low of $764.20, which marked the
weakest level since Sept 15.
The gold contract for December delivery <GCZ8> settled down
$22.00, or 2.8 percent, at $768.00 an ounce on the COMEX
division of the New York Mercantile Exchange.
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 raced to a 1-1/2-year peak versus a basket of
currencies as investors bet that interest rates outside the
United States could fall steeply to shore up global growth.
[]
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.
U.S. crude futures <CLc1> ended $3.36 lower at $70.89 a
barrel on Tuesday, pressured by expectations a global recession
will cut demand for oil. []
Crude had benefited on Monday from expectations that oil
cartel OPEC will cut production at its emergency meeting in
Vienna on Friday.
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. []
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. []
Spot platinum <XPT=> was at $882.50, down 1.2 percent from
Monday's late quote of $893.00, while palladium <XPD=> was at
at $180.50, up 1.1 percent from Monday's close of $178.50.
Silver <XAG=> at $10.12, up 3.8 percent from Monday's
finish of $9.75.
