Precious metals find floor after sell-off

By Jan Harvey

LONDON (Reuters) - Gold found support below $790 an ounce after falling nearly 5 percent in early European trade on Friday, as the precious metals' downward slide ran out of steam.

Spot gold hit an intraday low of $773.90, its weakest since November 20, before recovering to trade at $789.60/790.60 at 1340 GMT, down from $811.25/812.65 late in New York on Thursday.

COMEX December gold was down $18.80 at $795.70 an ounce, or 2.3 percent.

"We saw far stronger than expected support at the November lows, (and) the euro has stabilised and found some support," said Dresdner Kleinwort consultant Peter Fertig.

He said however that in the medium term, given expectations for a firmer dollar and lower oil prices, "the outlook for precious metals remains cloudy."

A strengthening dollar and fears over slower growth prompted investors to sell off commodities earlier in the day.

Losses across precious metals were led by silver, which slipped 12 percent or $1.76 an ounce in Asian trade, amid talk of large-scale selling by a Far Eastern bank.

A firmer dollar typically pressures bullion, which is often bought as an alternative investment to the U.S. currency. Strength in the greenback also makes dollar-priced commodities more expensive for holders of other currencies.

The dollar hit a six-month high against the euro on Friday after data showed a contraction in euro zone growth, and extended gains after a report showed unexpected growth in U.S. manufacturing in New York state.

The dollar has rallied 5 percent against the single currency this month.

"People are dollar-bullish at the moment," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

"Inflation will restrict the Fed's ability to cut rates, plus we have weaker growth in Europe, so the euro has been suffering," he added. "The dollar is coming out top at the moment, so people have been liquidating commodities."

SUPPORT TESTED

Gold is now holding above key support in the $770s, with any break lower potentially taking the precious metal down to $750.

"Generally... the outlook for the precious metals is mixed to mildly negative," said JP Morgan analyst Michael Jansen.