* Dollar heads for biggest weekly rise in 3-1/2 years
* Oil slides more than $2/barrel, other commodities decline
* Silver down nearly 5 pct to seven-month low, tracking gold
(Recasts, updates prices, adds comment)
By Jan Harvey
LONDON, Aug 8 (Reuters) - Gold slid more than 2 percent on Friday to a three-month low as the dollar headed for its biggest weekly rise in 3-1/2 years, and looked set to fall further as investors liquidated commodity holdings.
Gold XAU= was at $850.90/851.90 an ounce at 1414 GMT, down from $871.05/872.45 late in New York. Earlier the metal hit an session low of $850.50, its weakest level since May 2.
The precious metal is down nearly $60 an ounce, or 6 percent, from its level in New York late last Friday.
“The main driver at this point is the strength of the dollar, without a doubt,” said Tom Hartmann, a trader at Altavest Worldwide Trading.
A stronger dollar typically pressures gold, which is often bought as a hedge against weakness in the U.S. currency.
The dollar surged against the euro, the pound and the Swiss franc, as fears over the spreading economic slowdown dented confidence in other currencies. [ID:nN08411008]
The U.S. currency is on track for its biggest one-day rise in four years against the euro, which has been weakening since European Central Bank president Jean-Claude Trichet expressed caution over the European growth outlook on Thursday.
Traders interpreted his comments as a sign a euro zone rate hike was unlikely in the near future.
Gold in euro terms was only slightly softer, trading at 566.90 euros against 568.45 in late New York trade on Thursday.
“Clearly there is some demand from a portfolio perspective for gold in euro terms, many investors liking the portfolio protection afforded by the yellow metal in an inflationary environment,” said JP Morgan analyst Michael Jansen in a note.
Gold is also being pressured by a sell-off of commodities almost across the board, with copper, coffee, sugar and oil all declining.
U.S. crude oil slipped more than $4 a barrel as supply fears eased, and as the firmer dollar prompted funds to exit commodities. [ID:nSP182663]
Gold typically moves in the opposite direction to crude, as it is often bought as a hedge against oil-led inflation.
Silver declined in gold’s wake, pressured by the firmer dollar and faltering investor confidence in commodities.
“Silver (is) primarily taking its cue from the stronger dollar and weaker gold prices,” said Barclays Capital.
Silver bullion held by the iShares Silver Trust (SLV.A), the world’s largest silver-backed exchange-traded fund, fell 1 percent to 6,197.33 tonnes on Thursday, the trust said.
Spot silver XAG= fell to $15.41/15.46 an ounce from $16.14/16.23. Earlier it touched a seven-month low of $15.34 an ounce.
Among other precious metals, platinum and palladium also tracked gold lower, pressured by the firmer dollar.
Spot platinum XPT= fell to $1,539.00/1,559.00 an ounce from $1,572.00/1,592.00 late in New York, having earlier given up 2.5 percent to its session low of $1,531.50.
The metal fell sharply at the beginning of the week to fresh six-month lows. Platinum prices dropped $180 an ounce in three sessions as investors worried over the outlook for demand.
Spot palladium XPD= slipped to $331.50/339.50 an ounce from $344.00/352.00 late in New York.
Reporting by Jan Harvey; editing by Christopher Johnson