LONDON (Reuters) - Gold slipped 1 percent on Wednesday as the dollar firmed and weaker oil prices weighed on the market, but firm physical demand was underpinning prices.
Traders were awaiting data on U.S. crude inventories due on Thursday to give fresh direction to the oil market, which should influence gold.
Spot gold was at $719.00/721.00 at 10:25 a.m. EST against $731.70 an ounce late in New York on Tuesday. The metal fell 2 percent in that session as the dollar firmed against the euro.
A stronger dollar tends to dent interest in gold, which is often bought as an alternative investment to the U.S. currency.
"Gold is back to trading up and down according to what the dollar is doing," said Stephen Briggs, commodity strategist at RBS Global Banking & Markets.
Briggs said gold was being pressured in opposite directions by strong interest in gold products such as jewelry, coins and bars and physically-backed ETFs on the one hand, and fund selling on the futures market on the other.
"Physical investment has been pushing gold up, but the paper market has been pushing it down," he said.
Physical demand for gold jewelry, coins and bars is underpinning prices at lower levels, with dealers reporting strong buying in major bullion market India as the wedding season gets underway.
In Europe, refiners are struggling to keep up with demand for certain products, according to traders.
Chinese investment demand is gathering pace this year, with investment reaching 38.4 tonnes in the first nine months of 2008 against 24 tonnes for the whole of 2007, the China National Gold Corp said at a conference.
However, the dollar was still the primary factor influencing the market, analysts said. The U.S. currency rose on Wednesday, boosted by a flight to safety amongst investors spooked by the global economic downturn.
OIL FALLS
Crude oil, the other main external driver of gold, shed more than $2 a barrel as fears the economic slowdown will knock demand offset news of supply reductions.
Traders were awaiting fresh direction from U.S. oil stockpiles data, due out on Thursday at 10:35 a.m. EST.
UBS cut its gold price forecast for 2009 by 15 percent to $700 an ounce, and its price view for platinum that year by 18 percent to $900 an ounce.
"Gold will remain under pressure in 2009 from a combination of slowing demand for jewelry from important emerging markets and disinvestment as inflation slows and the dollar continues to strengthen," it said in a report.
Among other precious metals, platinum rose 3 percent to a high of $840 an ounce, recovering some of Tuesday's $34-an-ounce dip, but quickly shed gains in later trade as oil and other commodities softened.
No.3 platinum producer Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz) (LONJ.J: Quote, Profile, Research, Stock Buzz) said a strike by more than 2,000 union members had halted production at its Limpopo mine.
"High production costs, power shortages in South Africa, and interruptions caused by strikes and accidents are all factors which should help to stabilize the price of platinum," Commerzbank said in a research note.
Spot platinum was later quoted at $811.50/831.40 an ounce against $812.50 an ounce late in New York on Tuesday. Spot palladium was at $211/219 an ounce against $212.
Spot silver was at $9.45/9.53 an ounce against $9.74.
(Reporting by Jan Harvey; editing by Karen Foster)
