* Gold slides as commodities sell off
* Firmer dollar, weaker oil encourage selling of gold
* Traders await Fed meeting later this session for direction
(Updates prices, adds comment)
By Jan Harvey
LONDON, Aug 5 (Reuters) - Gold fell in Europe on Tuesday,
tracking losses in other commodities, notably oil which lost
more than $2 a barrel to a three-month low.
The dollar reached a new seven-week high against a basket of
currencies, further dampening interest in gold. Traders are
awaiting the rates announcement of the U.S. Federal Reserve
later in the session.
Gold <XAU=> fell as low as $880.90 an ounce, its weakest
level in nearly six weeks. At 1412 GMT it was at $882.30/883.30
an ounce, down from $895.55/896.95 late in New York on Monday.
COMEX December gold <GCZ8> lost $16.60 to $883.50 an ounce.
A firm dollar typically pressures gold, as it dents the
precious metal's appeal as an alternative investment.
[]
"Gold has sold off on oil's steep falls and with sharp falls
in many other commodity markets," said Mark O'Byrne, executive
director of Gold and Silver Investments.
"The CRB Reuters Jefferies Commodity Index was down 3
percent yesterday, its largest one day sell-off since last
March," he added.
Falling oil prices are also weighing on gold. U.S. crude
futures slipped to a three-month low of $118 a barrel as traders
focused on rising OPEC supply and easing demand in the United
States and Europe. []
Gold tends to track movements in crude, as it is often
bought as a hedge against oil-led inflation. Weaker oil prices
also undermine sentiment towards commodities as an asset class.
"Gold has to hold $880, otherwise we are going towards $855,
maybe $845," said Simon Weeks, director of precious metals at
the Bank of Nova Scotia. "If $845 were to break... we would be
in a bear market."
The lower prices attracted physical buying, he added.
FED EYED
Traders are looking ahead to the Fed's rate-setting meeting,
with a statement due at 1815 GMT. While rates are expected to
stay at 2 percent, analysts say the bank's accompanying
statement will be closely watched. <FEDWATCH>
"The key event risk today is the FOMC decision," said JP
Morgan analyst Michael Jansen. "The market is expecting no
change, but looking for a small uptick in hawkish rhetoric. This
could be US dollar supportive/metal negative."
Among other precious metals, platinum and palladium steadied
after posting sharp losses earlier in the session, when platinum
hit a fresh six-month low of $1,529 an ounce.
The white metal, chiefly used to make autocatalysts, has
shed around 13 percent in the last week, while palladium has
dipped nearly 10 percent.
The metals have been hit hard by the worsening outlook for
the automotive sector.
Spot platinum <XPT=> was at $1,559.50/1,579.50 an ounce
against $1,551.00/1,571.00. Spot palladium <XPD=> ticked up to
to $354.00/362.00 an ounce from $349.50/357.50 late in New York.
Silver <XAG=> slid to $16.70/16.77 an ounce from
$17.00/17.05.
(Reporting by Jan Harvey; Editing by Clare Black)
