LONDON, Jan 2: Gold eased in Europe on Friday, the first trading day of the New Year, as oil prices tumbled as much as 8 percent and the dollar strengthened against the euro, cutting the metal’s appeal as a currency hedge.

Prices remained underpinned by firm physical demand for gold, however, as investors bought the metal as a haven from risk over fears about the general financial outlook.

Spot gold was quoted at $872.20/874.20 an ounce at 1000 GMT, down from $880.15 an ounce in New York late on Wednesday, the last trading session of 2008. U.S. gold futures for February delivery fell $10.00 to $874.30 an ounce.

People are looking at oil and the dollar for guidance, said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus. But physical demand for the metal was healthy as the New Year got underway, he added.

We are still seeing some interest from the retail side for investment bars, he added. Since the crisis in the financial markets started, gold has really benefited from its role as a crisis metal, or a safe haven.”

Gold tends to move in line with crude, because it can be used as a hedge against oil-led inflation and as rising crude prices often increase interest in commodities as an asset class.

Part of this depreciation has been seasonal and we could see some appreciation of the greenback when participants return in full force on Monday Among other precious metals, silver fell in line with gold to $11.09/11.17 an ounce from $11.32 late on Wednesday.

Silver’s ability to close above the 100-day moving average is supportive for further gains, James Moore, an analyst at TheBullionDesk.com, said.

However, the metal needs to clear woody resistance around $11.64/11.85 to avoid stalling, he added.

Platinum and palladium, which posted heavy losses last year on fears over falling demand from carmakers, were little changed.

Spot platinum was at $933/938 an ounce from $932, while palladium was at $182/190 an ounce from $184.50.—Reuters