* Dollar firms vs the euro on flight to safety
* Oil prices tick up, boosting gold's inflation hedge appeal
* Platinum, palladium slide on demand fears
(Recasts, adds comment, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Oct 17 (Reuters) - Gold eased below $800 an ounce on
Friday, extending the previous session's 5 percent price drop,
as a firmer dollar pressured the metal.
Spot gold <XAU=> was quoted at $798.65/801.15 an ounce at
0951 GMT, down from $804.50 late in New York on Thursday. Prices
tumbled in that session as funds liquidated gold holdings to
cover losses on other markets.
Fresh strength in the dollar weighed on prices.
"The recent dollar strength has tended to weigh on gold
pretty heavily," said Standard Chartered analyst Daniel Smith.
"The dollar remains the underlying driver (of gold)."
Nonetheless, he said, the conflicting pressures on gold --
including firmer oil and investor deleveraging -- are likely to
result in consolidation, rather than further large price moves.
"Gold is reasonably close to fair value at the moment," he
said. "It looks like gold will trade sideways from here."
The precious metal is likely to be strongly influenced this
session by movements in the dollar, the main external driver of
gold. Gold is often bought as an alternative investment ot the
currency and typically moves in the opposite direction to it.
The dollar firmed a touch against the euro, as turmoil on
the financial markets boosted the U.S. currency's appeal as a
haven from risk.
Gold's other main driver, crude oil, is lending some support
to the market, however. Prices ticked up more than $3 a barrel
as a late rally among Wall Street stocks and expectations of an
OPEC production cut cheered investors. []
Rising crude prices boost interest in gold as a hedge
against oil-led inflation.
A rebound in equity markets after sharp losses in the
previous session is also likely to cut some call for gold as a
haven from risk. European shares jumped as investors picked up
battered bank and firmer oil prices benefited energy shares.
[]
The world's largest gold-backed exchange traded fund, New
York's SPDR Gold Trust, said its bullion holdings slipped more
than 1 percent on Thursday to 756.86.
CAR SALES HIT PGMs
Among other precious metals, silver rose to $9.76/9.84 an
ounce from $9.63 an ounce late in New York on Thursday. The
precious metal slipped sharply that session, falling to a 2-1/2
year low of $9.21 an ounce.
The platinum group metals tumbled on Thursday, with platinum
and palladium both shedding more than 10 percent of their value
to their day lows on fears over falling car sales.
The metals have extended losses on Friday. The platinum
group metals are primarily used in catalytic converters, and are
sensitive to problems in the automotive sector.
The car market has been hit hard by the economic downturn,
with reports suggesting record low auto sales have sparked
merger talks among the major carmakers. []
"All commodities are under pressure and outlook for the car
industry is really depressing," said one European trader. "I
think we could see $800 in platinum and $150 in palladium pretty
soon."
"It seems some funds are still liquidating and industry not
really buying," he added.
Spot platinum <XPT=> was quoted at $860/880 an ounce, down
from $884.50 late in New York on Thursday. Palladium <XPD=> was
at $167/175 an ounce, down from $171.
(Reporting by Jan Harvey; editing by Michael Roddy)
