(Updates prices, refreshes quotes)
By Karl Plume
LONDON, May 29 (Reuters) - Precious metals fell sharply on
Thursday, as a rally in the dollar against major currencies
dampened their appeal as an alternative investment.
Declining oil prices also hit market sentiment, with gold
falling more than 2 percent to a two-week low, platinum slipping
over 4 percent to touch a three-week trough and silver shedding
3.8 percent in choppy trade.
Spot gold <XAU=> fell as low as $879.05 an ounce and was
quoted at $883.60/884.25 at 1414 GMT, down from $899.65/901.05
in New York late on Wednesday.
"The weakness is across the board but on the precious side,
it's more of a dollar thing," said Jeremy East, head of metals
trading at Standard Chartered Bank.
"The markets are feeling that the U.S. economy is probably
going to remain slow because of the housing issues. There's a
general expectation that the Federal Reserve may have to start
hiking interest rates at a time when the economy is still weak."
The dollar rose against a basket of major currencies after
hawkish Federal Reserve comments prompted a jump in short-dated
U.S. bond yields, lifting demand for assets denominated in the
U.S. currency.
The U.S. currency was also bolstered after U.S. durable
goods data came in less weak than expected, quelling some
jitters about U.S. economic health. Retreating oil prices also
offered broad dollar support.
A firmer dollar makes gold costlier for holders of other
currencies and often lowers bullion demand. The metal is also
generally seen as a hedge against oil-led inflation.
OIL PRICES WEIGH
Oil fell to below $129 a barrel on signs that a demand
slowdown in some markets may spread as major Asian consumers
review their fuel subsidy policies. Prices have fallen from a
record high above $135 hit last week.
"The dollar is substantially stronger and that has had an
impact on the price," said David Holmes, director of precious
metals sales at Dresdner Kleinwort.
Gold's advance earlier this month to last week's peak above
$935 on the back of record oil prices blunted physical demand
for the metal. But demand should heat up again if prices stay
under $900, which has been a psychological support level.
"Physical demand for gold is definitely returning to the
market, certainly sub-$900, and that interest just grows as we
approach $850," Holmes said.
In other markets, gold futures for June delivery <GCM8> on
the COMEX division of the New York Mercantile Exchange were down
$17.60 an ounce at $882.70.
Platinum fell to a low of $1,967 an ounce, its lowest since
May 8, and was last quoted at $1,991.50/2,011.50, against
$2,059/2,079 in New York late on Wednesday.
"Platinum has done really well over the last six months but
the dollar's strength could be leading to some profit taking,"
said BNP Paribas analyst David Thurtell.
The market ignored reports that power problems in South
Africa, the world's largest platinum producer, would continue
for years. []
Eskom [], which produces about 95 percent of South
Africa's electricity, has rationed power through a process
called load-shedding since January, when the national grid
virtually collapsed and millions were plunged into darkness.
Large gold and platinum mines shut down for five days.
Spot silver <XAG=> slipped to $16.93/16.99 an ounce from
$17.37/17.43, while palladium <XPD=> fell to $427.50/435.50 from
$432/$440.
(Additional reporting by Humeyra Pamuk and Atul Prakash in
London)
(Reporting by Karl Plume; editing by Daniel Magnowski)
