* Oil falls nearly 8 percent
* Prices underpinned by physical demand for gold
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Jan 2 (Reuters) - Gold eased in Europe on Friday,
the first trading day of the New Year, as oil prices tumbled as
much as 8 percent and the dollar strengthened against the euro,
cutting the metal's appeal as a currency hedge.
Prices remained underpinned by firm physical demand for
gold, however, as investors bought the metal as a haven from
risk over fears about the general financial outlook.
Spot gold <XAU=> was quoted at $872.20/874.20 an ounce at
1000 GMT, down from $880.15 an ounce in New York late on
Wednesday, the last trading session of 2008. U.S. gold futures
for February delivery <GCG9> fell $10.00 to $874.30 an ounce.
"People are looking at oil and the dollar for guidance,"
said Wolfgang Wrzesniok-Rossbach, head of sales at precious
metals group Heraeus. But physical demand for the metal was
healthy as the New Year got underway, he added.
"We are still seeing some interest from the retail side for
investment bars," he added. "Since the crisis in the financial
markets started, gold has really benefited from its role as a
crisis metal, or a safe haven."
Oil slipped as much as 8 percent on Friday, giving up some
of the sharp gains it posted on the last day of trading in 2008,
as traders worried the surge was overdone. []
Gold tends to move in line with crude, because it can be
used as a hedge against oil-led inflation and as rising crude
prices often increase interest in commodities as an asset class.
The dollar was also firmer, further curbing interest in
gold, which is sometimes bought as an alternative investment to
the U.S. currency. []
The euro retreated against the dollar on perceptions that
the single currency's rally at the end of last year may have
been overdone, and after the unexpected downward revision to
euro zone manufacturing Purchasing Managers Index (PMI).
FIRMER DOLLAR
More dollar strength may be on the way, analysts said.
"The dollar has been under some pressure over the past three
weeks," Standard Bank analyst Walter de Wet noted.
"Part of this depreciation has been seasonal and we could
see some appreciation of the greenback when participants return
in full force on Monday."
Among other precious metals, silver <XAG=> fell in line with
gold to $11.09/11.17 an ounce from $11.32 late on Wednesday.
"Silver's ability to close above the 100-day moving average
is supportive for further gains," James Moore, an analyst at
TheBullionDesk.com, said.
"However, the metal needs to clear woody resistance around
$11.64/11.85 to avoid stalling," he added.
Platinum and palladium, which posted heavy losses last year
on fears over falling demand from carmakers, were little
changed.
Spot platinum <XPT=> was at $933/938 an ounce from $932,
while palladium <XPD=> was at $182/190 an ounce from $184.50.
(Reporting by Jan Harvey; Editing by Sue Thomas)
