(Recasts, adds analyst comments and closing prices, adds NEW
YORK to dateline)
By Frank Tang and Karl Plume
NEW YORK/LONDON, May 29 (Reuters) - Gold and other precious
metals ended sharply lower on Thursday, as a tumultuous drop in
crude oil prices combined with a dollar rise dampened bullion's
appeal as an alternative investment.
Gold fell more than 2 percent to a two-week low, with
platinum slipping more than 4 percent to touch a three-week
trough and silver shedding 4.3 percent in choppy trade.
Spot gold <XAU=> fell as low as $874.05 an ounce and was
last at $877.85/879.25 an ounce by New York's last quote at 2:15
p.m. EDT (1815 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 a
government report showed the U.S. economy grew faster than
expected in the first quarter, lifting demand for assets
denominated in the U.S. currency. []
"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.
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
U.S. crude futures <CLc1> ended more than $4 lower at
$126.62 a barrel in spite of an unexpected large drop in U.S.
stockpiles.
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, U.S. gold futures for August delivery
<GCQ8> on the COMEX division of the New York Mercantile Exchange
ended down $23.30, or 2.6 percent, at $881.70 an ounce.
RBC Capital Markets told clients in a note that smaller
positions held by short-term traders in the gold futures market
signaled that any possible subsequent rallies could be very
sharp.
Platinum <PL:> fell to a low of $1,967 an ounce, its lowest
since May 8, and was last at $1,987.50/2,007.50, 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 large gold and platinum
mines in South Africa shut down for five days due to the power
crisis.
Spot silver <XAG=> sank to $16.61/16.69 an ounce from
$17.37/17.43 late in New York on Wednesday, while palladium
<XPD=> fell to $421.50/429.50 from its Wednesday close of
$432/$440.
(Additional reporting by Humeyra Pamuk and Atul Prakash in
London, editing by Matthew Lewis)
