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Gold slides as dollar hits 2-yr high, oil slips

LONDON - Gold fell nearly 5 percent in Europe on Friday as a surge in the U.S. dollar curbed interest in the precious metal as a currency hedge, and oil prices fell more than $2 a barrel.

Platinum and silver tumbled 5 percent and 8 percent in gold's wake to touch multi-year lows.

Spot gold fell to $684.90 an ounce, a new 13-month low, before recovering to trade at $686.20/688.20 at 0923 GMT. It was quoted at $720.00 in New York late on Thursday.

"Gold is following the dollar and oil," Wolfgang Wrzesniok-Rossbach, head of sales at precious metals trading house Heraeus, said. "The physical demand we are seeing is not enough to stem the tide here."

Prices are suffering from a combination of liquidation by speculative investors and weak demand for jewellery, he said. Buying in the biggest gold market, India, is particularly soft ahead of the festival season there due to weakness of the rupee.

Gold has slipped some $180 or 20 percent from a month ago, pressured by a recovery in the dollar and a sharp slide in oil prices.

The dollar hit a fresh two-year high against the euro on Friday as falling share prices in Asia and Europe prompted investors to seek safety in the U.S. currency.

A stronger dollar typically pressures gold, which is often bought as an alternative investment to the currency.

The other main external driver of gold, oil prices, were also negative for the metal, with oil falling below $64 a barrel on Friday, to new 16-month lows on gloom about a global economic downturn and despite an OPEC agreement to cut output.

Oil cartel OPEC said at its emergency production meeting on Friday it would cut crude output by 1.5 million barrels per day from September production levels, effective from Nov 1.

The group had been expected to cut by up to 2 million barrels per day to safeguard prices after recent falls.

"Crude oil has been heading lower again since the start of trading in Asia on fears that the cut might not be sufficient to compensate (for) the shortfall of demand due to a global recession," Dresdner Bank said in a research note.

"Gold is likely to remain under pressure."

In New York, bullion holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust slipped 1 percent to 747.06 tonnes on Thursday.

Gold demand from ETFs, which issue securities backed by physical bullion, has been a major plank of support for prices in recent years.

SILVER, PLATINUM SLIDE

Among other precious metals, silver tumbled nearly 10 percent to a session low of $8.74, its weakest level since January 2006, tracking losses in gold. It was later trading at $8.77/8.85 against $9.66.

Platinum meanwhile slumped to a near five-year low of $752 an ounce, as the firmer dollar added to existing pressure on the metal from a fall in demand linked to expectations for slowing economic growth.

The white metal, primarily used in the manufacture of catalytic converters, has shed more than 50 percent of its value since August on fears of slowing demand from the automotive sector.

Platinum was quoted at $757/777, down from $802.50, while palladium was at $166/176, against $165.50.

"Although silver and platinum group metals are trading cheap relative to gold we would not expect these markets to start outperforming gold until reflation takes hold," Deutsche Bank said in a note.