LONDON, June 4: Gold slips in European trade on Wednesday as the dollar stood firm, curbing buying of the precious metal as an alternative investment, and as oil fell to its lowest level since mid-May.

Spot gold dropped to $879.30/880.10 an ounce from $882.90/884.10 late in New York on Tuesday, when it fell almost 1 per cent.

The dollar rallied Tuesday after Federal Reserve Chairman Ben Bernanke warned that the weaker dollar presented an inflationary threat, and indicated that the Fed is unlikely to cut interest rates further.

Traders are also eyeing oil inventory data due out at 1430 GMT on Wednesday from the US Department of Energy, which are expected to show crude stockpiles rose last week. This could further undermine oil prices and put more pressure on gold.

The weekly DoE inventory report could move crude oil and thus also gold considerably today, said Peter Fertig, an analyst at Dresdner Kleinwort in Frankfurt.

The precious metal usually moves in the same direction as crude prices, as it is bought as a hedge against oil-led inflation. Platinum was at $1,982.50/2,002.50 an ounce, down from $1,992.50/2,012.50 late in New York Tuesday.

While the metal has slipped in line with gold as a result of the stronger dollar, analysts say they expect supply constraints in South Africa, where a power shortage has crimped output of the white metal, and firm demand to underpin platinum.

Near-term industrial demand for the metal should remain robust with US April factory orders having risen 1.1 per cent against expectations for a 0.1 per cent decline and Eurozone (quarter on quarter) GDP growth remaining robust, said Standard Bank analysts.

This should support near-term prices. In industry news, South Africa’s Aquarius Platinum said it has received regulatory approval to buy a 50 per cent share in Platinum Mine Resources, which produces some 20,000 ounces of PGMs a year.

Palladium slipped to $427/435 an ounce from $429/437 late in New York on Tuesday. Silver eased to $16.64/16.70 an ounce from $16.77/16.84.—Reuters