Gold extended losses early on Tuesday, slipping half a percent following Monday's drop of nearly two percent on dollar weakness and worries about physical demand from India, the world's largest gold consumer. The U.S. dollar edged higher against the euro at $1.3592, holding near Monday's three-week high versus the single currency. [USD/] "We had a bullish tilt towards gold through December but further strength in the dollar might see gold erode some of those gains," said Toby Hassall, research analyst at Commodity Warrants Australia. He added that the risks appeared weighted towards a stronger dollar and gold prices could slip another 15 percent or more in the next three months. "U.S. interest rates can't get any lower, but there is room for more expansionary monetary policy in the eurozone, which should strengthen the dollar ... While the dollar firms, we might see gold move towards $800 and then $700 during the first quarter." Gold traded $3.90 lower at $855.00 an ounce by 0255 GMT, from New York's notional close on Monday, when it dipped to $843.50, its lowest in over a week. But not all analysts were looking for the dollar rally to continue. "The dollar is the key short-term driver for gold. Over the course of the quarter we expect the dollar to weaken against the euro," said David Moore, Commonwealth Bank's commodities strategist in Sydney. Worries about the ailing international economy in the first half of 2009 would generate some safe haven demand for bullion, but slowing physical demand from India was a concern, he added. "Indian gold imports were very low and that could be significant. An impairment of Indian demand for jewellery could take out some of the floor under gold prices." Gold imports by India, the world's largest buyer of the metal, fell 81 percent in December, and were down 47 percent in 2008 as high prices and a slowing economy dented demand. [ID:nL4551125] New York gold futures GCG9 fell $2.3 an ounce to $855.5 in electronic trade, while in Tokyo, December 2009 futures JAUc6 were down 1.1 percent at 2,566 yuan per gram. Oil prices CLc1 ticked down 12 cents or 0.25 percent to $48.69 a barrel, supported by geopolitical worries in the Middle East and a dispute between Russia and Ukraine over gas pricing. Oil prices have risen from around $35 a barrel since Israel launched its Gaza offensive on Dec. 27, heightening fears of possible disruptions of crude supplies from the Middle East. [ID:nL5700436] But the fighting in Gaza did little to support gold. "It would take a far more serious escalation of the violence in the Middle East to drive safe haven buying," a dealer in Singapore said. Platinum dropped 1 percent or $9.50 to $936.50, but the TOCOM benchmark JPLc3 rose 1.23 percent to 2,800 yen, bringing its gains since the start of the year to 5.6 percent. Precious metals prices at 0255 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 855.00 -3.90 -0.45 -2.86 Spot Silver 11.11 -0.11 -0.98 -1.86 Spot Platinum 936.50 -9.50 -1.00 0.48 Spot Palladium 182.00 -1.50 -0.82 -1.36 TOCOM Gold 2566.00 -28.00 -1.08 -0.27 14953 TOCOM Platinum 2800.00 34.00 +1.23 5.58 5723 TOCOM Silver 330.00 -8.40 -2.48 3.35 633 TOCOM Palladium 560.00 -18.00 -3.11 1.82 386 Euro/Dollar 1.3592 Dollar/Yen 93.18 TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce. (Reporting by Nick Trevethan; Editing by Clarence Fernandez)

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