LONDON, Sept 16: Gold fell nearly 2 per cent on Tuesday alongside a sharp drop in oil as the dollar firmed ahead of a decision on interest rates by the US Federal Reserve.

Platinum slipped more than 5 per cent to its lowest level since the end of 2006 as the escalating credit crisis reinforced fears that global economic slowdown could further hit demand from auto makers.

Although gold normally gains on safe-haven buying during financial crises, portfolio managers have been selling assets across the board after US investment bank Lehman Brothers filed for bankruptcy.

Spot gold fell 1.2 per cent to $776.90 an ounce from a session low of $771.55 from Monday’s close of $786.20. Earlier it touched a one-week high of $786.95.

Robin Bhar, analyst at Calyon, said oil and the dollar were weighing on gold. Although gold might be struggling in the short term, the longer this goes on, it should be positive, he said.

You might see more people coming into the market on the long side looking to buy gold if financial conditions continue to deteriorate.

Precious metals were undermined on selling led by Asian investors returning from a three-day weekend.

Markets will closely watch the outcome of the Federal Reserve’s meeting later in the day. Speculation of a rate cut is growing to help ease tensions in financial markets.

Investors and analysts will also scrutinise the Fed’s statement on the outlook for growth in the United States.

The most active December contract on COMEX was trading down $8.0 or 1 per cent at $779.0 from the New York settlement.

Spot platinum dropped to $1,099 an ounce, the lowest since December 2006, and was last quoted at $1,099/1,129 an ounce from Monday’s $1,164.50.

Platinum, mainly used in autocatalysts, has been hit by heavy selling due to a slowing US economy and poor car sales in the United States, Japan and China. It struck a record high of $2,290 an ounce in March.

Spot palladium tumbled more than 5 per cent, falling in line with platinum to trade 4.3pc lower at $221.50 an ounce. Spot silver was trading 1.8pc lower at $10.88 an ounce, from Monday’s close of $11.08.—Reuters