LONDON -- Gold tumbled to its lowest level for more than one-week on Tuesday as sagging oil prices and a firmer dollar prompted investors to retreat, but analysts said prospects for the precious metal look bright.
Spot gold was down at $657.80/658.40 an ounce by 1636 GMT from an earlier session trough of $655.40, the lowest since February 8, and compared with $670.60/671.30 in Europe late on Monday, when it hit a seven-month high of $673.20.
Traders said if gold closes below $665 on Tuesday then a drop towards $648-$650, an area of congestion at the beginning of this month, was likely.
"It was on the back of flagging oil prices and the dollar," a trader said. "$700 is still a possibility later this month."
Crude oil prices slipped nearly $2 a barrel to around $57.50 a barrel on expectations of slowing demand for heating oil in the United States, the world's largest consumer.
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However, with the world's fourth biggest exporter Iran apparently on a collision course with the United Nations over its nuclear programme, few analysts expect a major oil sell-off.
Gold often moves in the same direction as oil because it is seen as a hedge against energy-related price pressures, while a higher dollar makes dollar-denominated metals more expensive for investors in other currencies
The dollar rose against the yen for the third day running and bounced from a six-week low against the euro. But in the longer term analysts expect a significantly weaker dollar.
"The dollar picture from here is that it will continue to weaken till the end of the first half of this year," said Tariq Salaria, metals analyst at Standard Chartered. "It's hard not to be positive given the underlying fundamental."
JEWELLERY MAKERS
Analysts say a pick-up in demand from jewellery makers after weakness last year will boost prices.
"From a fundamental perspective, fabrication (jewellery) demand has shown signs of stabilising following last year's sharp fall," Barclays Capital said in a research note.
"Barring another surge in price and volatility, we expect demand to consolidate and firm up gradually over the year."
Expectations that the central banks of Russia, Asia and Middle Eastern countries could diversify their reserves, some possibly into gold, will also underpin prices.
The technical picture, too, looks positive, but analysts think gold needs a period of consolidation since the run higher from January 5, when it hit a two-month low of $601.70.
Traders say consolidation could take place this week because of the Lunar New Year holiday breaks across much of Asia have subdued the market.
Platinum slid to $1,206/1,211 an ounce compared with $1,216/1,221 on Monday, when it hit a three-month high of $1,219.
Analysts say prices could rise towards $1,300 over coming days on worries about low inventories and the potential for supply disruptions in South Africa.
Silver was at $13.73/13.78 an ounce from $13.99/14.04 on Monday and palladium was at $333/338 from $339/344.
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