* Gold breaks out of range to slide towards $1,100/oz
* Reserve Bank of India raises key policy rates 25 bps
* Oil prices tumble towards $80/barrel
(Updates prices, adds comment)
By Jan Harvey
LONDON, March 19 (Reuters) - Gold dropped 1.8 percent on
Friday as fresh gains in the dollar and news of an interest rate
hike in India pushed the metal through support at $1,120 an
ounce, triggering further selling.
Spot gold <XAU=> hit a low of $1,104.05 an ounce and was bid
at $1,105.65 an ounce at 1518 GMT, against $1,125.45 late in New
York on Thursday.
Gold earlier stuck to a $1,120-$1,126.50 range as a 0.5
percent drop in the euro-dollar <EUR=> was offset by signs of
further jitters over Greece's fiscal health, but was unable to
sustain that level.
"The euro went back towards $1.35, which was the main
trigger," said Michael Blumenroth, a senior trader at Deutsche
Bank. "The market was very quiet before that, so I think it was
taken by surprise."
He said news that India's central bank had raised key policy
rates by 25 basis points had also probably hit prices. "A rate
hike in any part of the world is bad for the gold market because
(it affects) the opportunity cost of holding gold."
U.S. gold futures for April delivery <GCJ0> on the COMEX
division of the New York Mercantile Exchange fell $22.70 to
$1,104.80 an ounce.
The euro fell to its lowest in more than two weeks against
the U.S. dollar on Friday, pressured by weakness in stocks and
renewed worries about Greece's debt problems. []
The single currency has fallen 5.5 percent versus the dollar
this year as investors fret over the outlook for Greece. The
country said on Thursday it cannot achieve promised deficit cuts
if its borrowing costs remain so high, and may have to call in
the IMF. []
The Reserve Bank of India meanwhile increased the repo rate,
the rate at which it lends to banks, to 5.00 percent and the
reverse repo rate, the rate which it absorbs funds from the
system, to 3.50 percent with immediate effect. []
Commerzbank analyst Eugen Weinberg said as India is the
world's largest gold buyer, concerns of lower imports and demand
from the country would weigh on interest in gold.
OIL SLIPS
Among other commodities, oil fell 2.6 percent to near $80 a
barrel on Friday as the dollar strengthened against the euro on
worries over Greece's debt problems. []
Gold tends to track crude prices, as the metal can be bought
as a hedge against oil-led inflation.
Among other precious metals, silver <XAG=> was at $17.02 an
ounce against $17.35.
"We continue to expect silver prices to draw upside momentum
(from) gold prices rather than finding support via its own
supply and demand dynamics," Barclays Capital said in a note.
"Even though we expect industrial activity to support the
demand picture for silver, the metal's price trajectory
continues to rest in the hands of investors."
The bank said it expects growth in mine supply to keep
the market balance in surplus in 2010.
Among other precious metals, platinum <XPT=> was bid at
$1,607 an ounce against $1,627, while palladium <XPD=> was at
$463.50 an ounce against $475 an ounce.
(Editing by Anthony Barker)
