Gold falls 2 percent in broad commodities sell-off

By Atul Prakash and Bate Felix

LONDON (Reuters) - Gold fell more than 2 percent in a broad commodities sell-off on Friday, with a rise in the dollar and softer oil prices dampening the metal's allure as an alternative investment.

Other key precious metals, base metals and major soft commodities traded lower, with investors pocketing profits before the end of the quarter.

Gold fell to $926.50 before rising to $933.30/934.20 an ounce at 11:40 a.m. EDT, against $951.80/952.60 in New York late on Thursday. Last week, it hit a record high of $1,030.80 an ounce before tumbling to a one-month low of $904.70.

"The market is really correcting itself, but it's a general move out of commodities. It's not just gold," said Jeremy East, head of metals trading at Standard Chartered Bank.

The market witnessed a heavy sell-off last week before rebounding on technical buying. Now it was witnessing a continuation of the downward trend, with people liquidating their positions and running for cash, East said.

"But I don't think the bullish trend is over. There is still buying interest, but in the short term the market has probably overdone on the upside. We are in a consolidation phase and gold may break back down below $900 again."

The dollar edged higher but hovered not far from record lows against the euro after U.S. data showed inflation pressures were tame in February, affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy.

A firmer dollar makes gold costlier for other currency holders and often lowers demand. Lower oil prices reduce the metal's appeal as a hedge against inflation.

Oil fell more than $2 to near $105 a barrel as crude flows through Iraq's pipeline system were restored after disruption by a bomb attack on Thursday.

"I would expect gold to continue bouncing around in the range of about $955 on the upside and down to about $915," said Tom Kendall, metals strategist at Mitsubishi Corporation.

"It's going to take until the second half of the next week before the market is going to be ready to make a more convincing push upward again."

U.S. gold futures for April delivery fell $16.6 an ounce to $932.20 -- off last week's record of $1,033.90.

LONG-TERM POSITIVE

Analysts were positive on the metal's outlook in the medium to long term.

"The sudden price pull-back across the precious metal complex during March has raised concerns that the bull run in this sector has drawn to a close. We disagree," said Michael Lewis, global head of commodities research at Deutsche Bank.