LONDON (Reuters) - Gold ended lower after hitting a four-month low below $850 an ounce on Thursday, as a sharp rise in the dollar lowered gold's appeal as an alternative investment and triggered a sell-off in precious metals.
Silver and palladium hit three-month lows, while platinum shed 3 percent to a one-month low below $1,850 an ounce.
Gold fell as low as $847.10 an ounce after initially rising to a high of $881.30. It was last at $850.25/851.65 by New York's last quote at 2:15 p.m. EDT, against $864.65/866.05 in New York late on Wednesday.
"I think $850 is enough for now, but longer-term I expect to see (gold at) the 200-day moving average, currently at $822, before the correction will be complete," Simon Weeks, managing director of precious metals at Bank of Nova Scotia, said.
"Sentiment has been bearish for a while, but it's time to take a breather around this level before moving lower again. We see some physical and technical buying, but I think there will be better bargains in the coming days."
Precious metals came under pressure mainly because the dollar rose to five-week highs against the euro after a key U.S. manufacturing index for April came in slightly better than expected.
A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. Falling oil prices also hit gold, which is viewed as a hedge against oil-led inflation.
U.S. crude oil futures ended down 94 cents at $112.52 a barrel. Crude hit a session of $110.30 a barrel, then rebounded on news of a supply disruption in Nigeria.
"There is a certain investor fatigue that has crept in the market in the last few weeks and I think it is going to take a bit of oomph to get it going again," said Stephen Briggs, economist at SG Corporate and Investment Banking.
U.S. gold futures ended sharply lower, with the active contract for June delivery settling down $14.20, or 1.6 percent, at $850.90 an ounce.
Dealers were concerned about a drop in bullion holdings in StreetTRACKS Gold Shares, the world's largest gold exchange-traded fund, to 580.45 tons as of Wednesday, down nearly 10 percent in the last 10 days.
"We have fallen through a couple of support levels," said Tom Kendall, metals strategist at Mitsubishi Corporation.
"There is more downward potential. We have got quite a lot of data out of the U.S. over the next two days and that will determine where the dollar goes from here in the short term."
In industry news, Gold Fields (GFIJ.J) said it had suspended some operations at its South Deep mine in South Africa after an accident killed nine contract workers.
Spot platinum fell below $1,850 an ounce before last quoted at $1,860.50/1,880.50 an ounce, against $1,906/1,921 late on Wednesday in New York.
Silver fell to a low of $15.97 an ounce and was last at $16.19/16.25, versus its previous finish of $16.60/16.65. Spot palladium was at $406/414 an ounce after falling to a low of $397, against $410.50/418.50 late on Wednesday in the U.S. market.
Additional reporting by Frank Tang in New York; Editing by David Gregorio