Gold slips to two-week low on oil, dollar

By Jan Harvey

LONDON (Reuters) - Gold slid to a two-week low as oil prices declined, denting the precious metal's appeal as an inflation hedge, and as the dollar extended Tuesday's gains against the euro.

The platinum group metals also posted sharp losses, with platinum slipping to its lowest level since early February and palladium sliding 5 percent, in sympathy with gold and on reports carmaker Toyota may cut its sales target this year.

Gold dropped to $932.20/933.20 an ounce at 1007 GMT (6:07 a.m. EDT) from $948.30/949.90 late in New York on Tuesday, having hit an intraday low of $932.00 -- its lowest level since July 10.

The precious metal slipped sharply on Tuesday as the dollar rallied after Philadelphia Federal Reserve President Charles Plosser said the Fed may have to start raising rates to combat inflation.

Gold typically moves in the opposite direction to the U.S. currency, as it is bought as a hedge against dollar weakness.

"The comments by Plosser certainly set the tone for the rest of the week," Merrill Lynch analyst Daniel Hynes said. "The US dollar reacted quite quickly to those, and as a consequence gold has been sold off."

"The pull-back in the oil price has been a key factor over the last few days," he added. "That market has turned a lot more bearish, so people are more comfortable with the inflation outlook."

Crude prices slipped more than $2 a barrel on Wednesday as concerns eased that Hurricane Dolly would hit oil installations in the Gulf of Mexico.

STOCKS RALLY

Meanwhile equities are rallying, with European shares up 2 percent and world stocks hitting a three-week peak, as the lower oil price boosted interest in the stock markets.

"A fall in crude oil prices could see investors increase equity market exposure, raising precious metals' downside potential today," Standard Bank analyst Manqoba Madinane said.

"Investment sentiment in the commodity complex might be cautious throughout today."

Investor interest in gold seemed to be softening, with the amount of gold held to back the SPDR Gold Trust in New York -- the world's biggest gold-backed exchange-traded fund -- falling 2 percent to 690.26 tonnes on Tuesday.

Holdings previously had been close to a record.

Among other precious metals, spot silver tracked gold lower to $17.52/17.57 an ounce from $18.00/18.08 late in New York on Tuesday.