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London: Gold dropped over two per cent towards $800 an ounce on Tuesday after a steep drop in oil prices and a rally in the dollar reduced the precious metal's appeal.
Platinum and palladium also fell heavily, losing three and five per cent respectively due to poor demand and the dollar's strength.
Gold fell to a low of $800.50 an ounce from $817.15/$818.75 an ounce late in London, before recovering slightly to $805.00/$806.00 an ounce at 1023 GMT.
"The reverse correlation between the dollar's recovery against the euro and the gold price has been quite impressive lately," said Standard Chartered analyst Daniel Smith.
"Gold investors are watching the oil price very closely and with oil coming down, prices have come off."
The dollar extended its rally to fresh 2008 highs against a basket of currencies yesterday, with a near $8 drop in oil prices fuelling the currency's recovery.
The current relationship between moves in oil and the dollar's recovery has weighed doubly on gold, as the precious metal generally acts as hedge against fuel-led inflation and as an alternative investment to the US currency.
"The movements in oil prices and the US dollar have both conspired against gold," said David Moore, an analyst at Commonwealth Bank of Australia in Sydney.
Gold has lost more than 20 per cent in value since spiking to an all-time high of $1,030.80 in March.
Since July, the dollar has recovered some 15 cents from its all-time low of $1.60 against the euro, while crude prices are now about $40 below all-time highs seen above $147 a barrel in the same month.
Physical buying has kept gold supported around $800 an ounce, with rising evidence of demand from Indian jewellers is returning now prices have come off their highs.
Gold imports into India - one of the top consumers of the metal - jumped 45 percent in August year-on-year, the first annual rise seen in 2008.
Dealers in Delhi said that demand was expected to continue to rise ahead of the Indian festival season.
Spot platinum dropped to a low of $1,372 an ounce from $1,439.00/$1,451.00 late in London before rising to $1,380.00/$1,400.00 an ounce.
Rising concerns about demand for autocatalysts due to poor car sales and a slowing US economy have hit prices hard, dragging them some 40 per cent lower from the all-time high of $2,290 an ounce back in March.
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