* Dollar firms vs the euro on flight to safety
* Oil pares gains, undermining gold's inflation hedge appeal
* Platinum, palladium slide on demand fears
(Adds comment, updates prices)
By Jan Harvey
LONDON, Oct 17 (Reuters) - Gold fell 3 percent on Friday,
extending the previous session's losses, as the dollar firmed
against the euro, and investors sold bullion to cover losses on
other markets.
Spot gold <XAU=> was quoted at $786.15/788.65 an ounce at
1304 GMT, down from $804.50 late in New York on Thursday, when
it slipped 5 percent. Earlier it touched a low of $777.80.
Strength in the dollar against the euro is being supported
by interest in the currency as a haven from risk, analysts say.
This is weighing on gold, as it cuts the metal's appeal as an
alternative investment to the U.S. currency.
"This is a combination of the dollar being stronger, and
disillusionment that gold hasn't performed as well as might have
been expected (given that) a lot of measures of market turmoil
are still showing things to be as bad as ever," said Matthew
Turner, at commodity analysts VM Group.
Support from gold's other main external driver, crude oil,
is also waning. Prices ticked up more than $3 a barrel in early
trade as a late rally among Wall Street stocks and expectations
of an OPEC production cut cheered investors, but have since
sharply pared gains. []
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 tracked gold lower to
$9.38/9.47 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 also 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 $850/870 an ounce, down
from $884.50 late in New York on Thursday. Palladium <XPD=> was
at $168.50/176.50 an ounce, down from $171.
(Reporting by Jan Harvey; editing by Peter Blackburn)
