* Gold drops 4 pct, silver 12 pct, platinum 5 pct
* Euro sinks as Trichet downplays euro zone inflation
risks
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 2 (Reuters) - Gold tumbled below $850
an ounce and other precious metals also dropped broadly on
Thursday on a dollar rally and as investors sold bullion for
cash to cover losses in other markets.
Silver plunged more than 12 percent in sympathy, while
platinum shed over 5 percent to its weakest level since January
2006 due to demand fears after U.S. carmakers reported a sharp
drop in auto sales in September.
Spot gold <XAU=> was at $838.00/841.00 an ounce at 2:29
p.m. EDT (1829 GMT), down 3.5 percent from gold's nominal
Wednesday close at $868.75. Earlier, it touched a session low
of $829.20, its weakest level since Sept 19.
"The major driver here is clearly the dollar," said
Wolfgang Wrzesniok-Rossbach, head of sales at precious metals
trading group Heraeus. Gold moves against the dollar as it is
often bought as a hedge against weakness in the currency.
He said the metal was also losing value because some
investors were liquidating gold holdings to cover losses on
other markets.
"Some would say gold is no longer a safe haven if it reacts
like this at a time of financial crisis," he said. "But in fact
this is a confirmation that it is a safe haven, because people
are now able to liquidate something they have made money on."
Gold is one of the few assets to have gained in value in
recent weeks, when most major equity markets and other
commodities have posted significant losses.
It hit a two-month high of $920 an ounce on Monday after
the U.S. Congress rejected a $700 billion plan to bail out the
beleaguered financial sector.
But the firming dollar has put pressure on gold.
The U.S. currency touched a near 13-month high against the
euro after European Central Bank president Jean-Claude Trichet
said inflation risks in the euro zone had diminished.
[]
Traders were awaiting the outcome of a vote by the U.S.
House of Representatives on a rescue plan for U.S. banks that
was approved on Wednesday by the Senate.
U.S. gold contract for December delivery <GCZ8> settled
down $43.00, or 4.85 percent, at $844.30 an ounce on the COMEX
division of the New York Mercantile Exchange.
SILVER DROPS ON DEMAND WORRIES
Meanwhile, less-liquid silver <XAG=> plunged to $10.98 an
ounce before recovering a touch to trade at $11.07/11.15 an
ounce, down 11.6 percent from Wednesday's nominal close of
$12.52, tracking losses in gold.
George Gero, vice president of RBC Capital Markets Global
Futures, said that silver plummeted on demand fears because of
its industrial metal attribute.
"You have a picture of lack of industrial demand, and of
course the bleak automobile picture," Gero said.
Major carmakers reported plunging U.S. sales for September,
led by a 34 percent slide at Ford Motor Co <F.N>. The
escalating credit crisis is raising fresh doubts as to when the
world's largest car market will stabilize. []
Other precious metals such as silver, platinum and
palladium, which have more industrial uses, have suffered
losses as traders bet demand will be hit by the global banking
crisis.
Spot platinum <XPT=> was quoted at $966.00/986.00 an ounce,
its weakest level since January 2006, against $1,020 an ounce
in late New York trade on Wednesday.
"Motor vehicle sales in the U.S. came out way below
expectations, the lowest since 1993 in terms of a
month-on-month increase," said Standard Bank analyst Walter de
Wet.
"When the market is illiquid, it is vulnerable to large
moves," he added. "Combined with that, we have the dollar which
is continuing to strengthen. There is nothing working in favour
of platinum group metals at this stage."
Around half the world's annual platinum demand comes from
carmakers, who use the metal as a component in autocatalysts.
Palladium <XPD=> was slightly higher at $202.50/206.50 an
ounce from its Wednesday close of $201.50 an ounce.
(Editing by Marguerita Choy)
