* Dollar rises to 3-week high vs euro on stimulus hopes
* Oil prices climb above $48 but fail to hold gains
* Abu Dhabi Dec gold sales fall 40 pct month on month
(Updates, adds comment)
By Jan Harvey
LONDON, Jan 5 (Reuters) - Gold fell 3 percent in Europe on
Monday as a stronger dollar knocked the metal's appeal as a
currency hedge and oil prices retreated from highs.
Spot gold <XAU=> was quoted at $852.00/854.00 an ounce at
1235 GMT, down from $873.20 an ounce late in New York on Friday,
having touched a session low of $850.20.
U.S. gold futures for February delivery <GCG9> on the COMEX
division of the New York Mercantile Exchange were down $25.10 at
$854.30 an ounce, having earlier touched a low of $850.00.
"Gold's move in the last couple of days is almost entirely
due to the strength of the dollar," said UBS commodity
strategist John Reade. "The number one, front centre driver of
the dollar gold price is where euro-dollar is going."
The euro-dollar exchange rate "moved sharply higher in
December and has come off in the first couple of trading days of
this year," he added. "It has dragged gold with it."
The U.S. currency extended gains against the euro to a fresh
three-week high on Monday on hopes U.S. President-elect Barack
Obama will unveil fresh measures to boost the economy.
[]
Obama is due to meet House Speaker Nancy Pelosi and Senate
Majority Leader Harry Reid later in the session to discuss their
legislative agendas. []
The euro has also been battered by poor Italian and Spanish
inflation data and tax cuts in Germany, which are expected to
add pressure on the European Central Bank to cut interest rates
soon.
Currency traders will be looking ahead to U.S. construction
and vehicle sales data due out later in the session, November
durable goods and factory orders data on Tuesday and key U.S.
non-farm payrolls numbers on Friday.
The precious metal had found good support in early trade as
oil prices rose nearly 3 percent after an Iranian military
commander called for an oil boycott over Israel's offensive in
the Gaza Strip. []
However, it has slipped as oil gave up those gains.
Gold usually moves in line with oil prices, both because
firmer crude boosts interest in the precious metal as a hedge
against oil-led inflation and increases the appeal of
commodities as an asset class.
Firmer equity markets are providing some support for the
precious metals, however. European shares were higher at midday,
with energy stocks leading gainers. []
"The recovery in the stock markets after Christmas will be a
supportive factor, if it continues in the first full trading
week in January," said Dresdner Kleinwort consultant Peter
Fertig.
JEWELLERY BUYING SOFT
Demand for gold jewllery has been hit by the higher prices.
Sales in Abu Dhabi fell 40 percent in December from a month
before, the emirate's industry group said. []
Gold buying in India, the world's largest market for the
precious metal, has been crimped by higher prices, traders said.
"People would want to buy if prices fall below 12,500
rupees," said Mayank Khemka, managing director of Delhi-based
Khemka International. Prices are currently around 13,500 rupees.
Fears over the outlook for the global economy lent powerful
support to gold prices towards the end of last year. Gold was
one of the only commodities to end the year with a slight gain,
as investors flocked to buy the metal as a haven from risk.
Among other precious metals, silver slipped in line with
gold to $10.96/11.04 an ounce from $11.52 late on Friday.
Platinum and palladium were steady, awaiting fresh direction
from U.S. auto sales figures due out later on Monday.
Spot platinum <XPT=> eased to $926/931 an ounce from $944,
while palladium <XPD=> dipped to $183.50/188.50 an ounce from
$190.
(Reporting by Jan Harvey; Additional reporting by Julie Crust;
Editing by Peter Blackburn)
