Gold hovers around $800/oz, strong dollar weighs

LONDON (Reuters) - Gold came under pressure on Tuesday, struggling to stay above $800 an ounce level due to a strong dollar, but robust physical demand capped losses.

Platinum dropped more than 4 percent on worries about demand for autocalysts due to poor car sales in key markets such as the United States, Japan and China, dragging sister metal palladium down 6.5 percent.

Gold fell as low as 1 percent to $794.00 an ounce and was at $799.80/800.80 an ounce by 5:54 a.m. EDT, down from $802.25/803.60 an ounce late in New York on Monday.

"The dollar rose from around 1.4300 to around 1.4100 (against the euro) yesterday and is definitely not bullish for gold," said analyst Michael Widmer at Lehman Brothers.

The dollar rose while the yen surged broadly on a flight to safety as investors concluded U.S. action to save two top mortgage agencies did not alter fundamentals.

"There is some physical buying coming through and helping the prices to hold onto those levels," Widmer said.

Bullion has fallen more than 18 percent since hitting a four-month high of $987.75 an ounce in mid-July but stabilized around $800 an ounce -- still up 14 percent from a year ago.

Gold was well below a lifetime high of $1,030.80 hit in March and within sight of a nine-month low of $773.90 struck in mid-August. Festive demand especially from main consumer India was likely to offer support at lower levels, dealers said.

"We are approaching the Indian wedding season which is a period of strong physical demand," said John Meyer at Fairfax Investment Bank in a research note.

PHYSICAL DEMAND

India is stepping up purchases during the festive season, which peaks in October with Diwali, the Hindu festival of lights. Dealers also saw purchases from jewelers in Indonesia ahead of the Eid al-Fitri Muslim holidays in October.

"Demand from our regular customers such as India, Indonesia and Thailand is still there. There's a shortage of physical bars in this region, which also helps support premiums," said a dealer in Singapore.

Investors also kept an eye on oil prices, which fell to a new five-month low, pressured by a rise in the U.S. dollar and expectations that OPEC will not cut output when it meets later on Tuesday.

In industry news, exports of Italian jewelery are expected to improve after an estimated 30 percent drop in volume in the first half to post a full-year fall of about 10 percent, a senior industry expert said on Tuesday.

Spot platinum fell almost 5 percent to $1,274.00 an ounce and was last at $1,287.50/1,307.50 from $1,337.00/1,357.00 late in New York on Monday, when it tumbled nearly 4 percent.

"Demand is very bad. Automakers are not buying," said Kazuhiko Saito of Interes Capital Management in Tokyo, adding that cash platinum may trade below $1,200 by end-September, referring to a level last seen in March 2007.

Autocatalysts, used to clean exhaust fumes, account for more than 50 percent of global demand. China's passenger car sales fell in August from a year earlier, the first monthly decline in more than two years as a slowing economy and the Beijing Olympics kept would-be car buyers from showrooms.

Silver was at $12.02/12.08 from $12.05/12.11 while palladium at $248.50/256.50 from $258.00/266.00

(Additional reporting by Lew Pardomuan, Editing by Peter Blackburn)