LONDON, Sept 2: 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.

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 on Tuesday , with a near $8 drop in oil prices fuelling the currency’s recovery.

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 centin 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 per cent in August year-on-year, the first annual rise seen in 2008.

Spot platinum dropped to a low of $1,372 an ounce from $1,439.00/1,451.00 late in London, before edging back to $1,380.00/1,400.00 an ounce.

Saito pegged platinum’s downside target at $1,350 an ounce - a level last seen in late August.

Platinum’s sister metal palladium fell over five per cent, touching a low of $282.00 an ounce before recovering to $288.50/296.50 from $297.00/305.00 an ounce in late London trades on Monday.

Silver tracked gold lower to $13.20/13.26 an ounce from $13.40/13.46 an ounce late in London.—Reuters