* Dollar firms vs euro, oil falls 5 percent on demand fears
* Prices underpinned by physical demand for gold
(Updates prices)
By Jan Harvey
LONDON, Jan 2 (Reuters) - Gold slipped 1 percent in Europe
on Friday, the first trading day of the New Year, as the dollar
strengthened against the euro and oil prices tumbled 5 percent.
According to traders, prices remain underpinned by firm
physical demand for gold, however, as investors bought the metal
as a haven from risk over fears about the global financial
outlook.
Spot gold <XAU=> was quoted at $870.20/872.20 an ounce at
1357 GMT, down from $880.15 in New York late on Wednesday, the
last trading session of 2008. U.S. gold futures for February
delivery <GCG9> fell $12.40 to $871.90 an ounce.
"On the currency front, the dollar is trading slightly
stronger against the euro," Standard Bank analyst Walter de Wet
said.
"The dollar has been under some pressure over the past three
weeks," he added. "Part of this depreciation has been seasonal
and we could see some appreciation of the greenback when
participants return in full force on Monday."
The firmer dollar curbed interest in gold, which is
sometimes bought as an alternative investment to the U.S.
currency. []
The euro retreated against the dollar on perceptions that
the single currency's rally at the end of last year may have
been overdone, and after an unexpected downward revision to euro
zone manufacturing Purchasing Managers Index (PMI).
Currency traders will be looking forward to the release of
U.S. ISM manufacturing data for December at 1500 GMT, which
could have an impact on the currency markets.
The other main external of gold, oil, slipped 5 percent on
Friday, giving up some of the sharp gains it posted on the last
day of trading in 2008, as traders worried the surge was
overdone. []
Gold tends to move in line with crude, both because it can
be used as a hedge against oil-led inflation and as rising crude
prices often increase interest in commodities as an asset class.
PHYSICAL DEMAND FIRM
Nonetheless demand for physical gold from investors is firm,
traders said. "We are still seeing some interest from the retail
side for investment bars," said Wolfgang Wrzesniok-Rossbach,
head of sales at precious metals group Heraeus.
"Since the crisis in the financial markets started, gold has
really benefited from its role as a crisis metal, or a safe
haven," he said.
However gold imports into India, the world's largest bullion
market, fell 81 percent year-on-year in December to just 3
tonnes, the Bombay Bullion Association said. []
"Imports were down because prices rose," the association's
president Suresh Hundia said.
Silver <XAG=> fell in line with gold to $11.11/11.19 an
ounce from $11.32 late on Wednesday.
"Silver's ability to close above the 100-day moving average
is supportive for further gains," James Moore, an analyst at
TheBullionDesk.com, said.
"However, the metal needs to clear woody resistance around
$11.64/11.85 to avoid stalling," he added.
Platinum and palladium, which posted heavy losses last year
on fears over falling demand from carmakers, were little
changed.
Spot platinum <XPT=> was at $931.50/936.50 an ounce from
$932, while palladium <XPD=> was at $183.50/188.50 an ounce from
$184.50.
(Reporting by Jan Harvey; Editing by William Hardy)
