* Dollar index ticks higher, pushing gold below $950/oz
* Oil falls after sharp drop in Chinese stock market
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Aug 31 (Reuters) - Gold slipped more than 1 percent
in Europe on Monday as the dollar index rose and a drop in oil
prices curtailed interest in the metal as an inflation hedge.
Spot gold <XAU=> was bid at $945.95 an ounce at 1244 GMT,
against $954.45 an ounce late in New York on Friday. U.S. gold
futures for December delivery <GCZ9> on the COMEX division of
the New York Mercantile Exchange fell $11.90 to $947.40.
Weakness in oil prices, which fell nearly 2.5 percent, and a
0.25 percent rise in the dollar index <.DXY>, which tracks the
U.S. unit's performance against a basket of currencies, are both
weighing on gold. [] []
Afshin Nabavi, head of trading at MKS Finance, said price
volatility had also been exacerbated by holiday-thinned trade,
with the London market closed for the bank holiday.
"(Gold) tested $960 again in the Far East and could not
break up," he said. "We could try the lower $940s again."
Gold typically trades in a close negative relationship with
the dollar, as it is often bought as an alternative investment.
Like all dollar-priced assets, it also becomes cheaper for
holders of other currencies as the U.S. unit softens.
Oil fell nearly $2 a barrel as a drop in the Chinese stock
market fuelled fears over the country's economy. []
China's key stock index tumbled 6.74 percent on Monday to a
three-month closing low after surging stock valuations
overwhelmed improvements in corporate earnings. []
European shares also fell in early trade, tracking losses in
China. Traders expect a quiet trading session as London markets
are closed. U.S. stock futures pointed to a lower opening on
Wall Street. [] []
DEMAND SOFT
Gold demand from the main gold-backed exchange-traded fund,
New York's SPDR Gold Trust <GLD>, remained soft, with the fund
reporting its holdings were unchanged on Friday. []
The precious metal is taking little direction from
underlying demand or supply issues over the seasonally quiet
summer period, analysts said.
"At the moment, gold has no life of its own, it is just
trading on the U.S. dollar," said Commerzbank analyst Eugen
Weinberg. "We are still in a trading range between $920-930 and
$960, and we will stay here as long as the U.S. dollar is
rangebound."
Silver fell 1 percent, pressured by gold's softer tone and
losses in base metals such as copper, which fell nearly 3
percent in Asian trade amid fears over the economy. Silver, like
copper, is a largely industrial metal. []
Holdings of the world's largest silver-backed ETF, the
iShares Silver Trust <SLV>, also fell 82.6 tonnes last week.
Spot silver <XAG=> was at $14.59 an ounce against $14.74.
Platinum prices were also a touch softer, pressured by a
decline in prices of industrial commodities such as oil.
Platinum <XPT=> was at $1,232 an ounce against $1,244, while
palladium <XPD=> was at $284.50 against $287.
South Africa's mine workers' union said a strike at Impala
Platinum <IMPJ.J>, the world's second-largest producer of the
white metal, was likely to spread to the company's metal
refinery. []
But analysts say persistent weakness in demand for the
autocatalyst metal and rising above-ground stocks are capping
price gains. Last week the world's biggest carmaker Toyota said
it was considering cutting production capacity. []
"Demand concerns in platinum have tended to overshadow
supply tightness," said HSBC analyst James Steel in a note.
"This may explain some of the reasons why palladium has
outperformed platinum on a relative basis in recent weeks."
"Should the scope of industrial stoppages widen in South
Africa, platinum may rally further and could outpace palladium."
(Editing by Editing by Peter Blackburn)
