LONDON, Sept 3: Gold fell more than 2 per cent on Wednesday, dropping back beneath $800 an ounce as strength in the dollar and a drop in oil prices continued to weigh on investor sentiment.

With the dollar soaring to an 11-month high and oil prices continuing to decline, the metal’s appeal as an alternative to the US currency and as a hedge against fuel-led inflation has been diminished.

Gold was trading at $795.55/796.55 an ounce down from $804.90/806.25 an ounce late in New York on Tuesday.

Gold has fallen by around $40 an ounce in less than a week.

There’s definitely a lot of negative sentiment towards gold at the moment, due mainly to the dollar’s strength, said Standard Bank analyst Walter De Wet.

Given the strength of the dollar’s rally, gold’s actually holding up quite well, as we’re seeing better physical demand, but ultimately investment demand still dominates in terms of physical holdings.

Gold struck a nine-month low around $773 in mid-August, and although it briefly rallied, the metal has come under increasing pressure as the dollar has clawed back over 16 cents against the euro since its all-time low of $1.60 seen in July.

Lower prices have attracted buying before the festive season in main consumer India, where gold imports in August jumped 45 percent from a year ago.

Key markets Turkey and Dubai have also reported strong sales in August. Analysts said the drop in gold prices has released a surge of pent-up buying which was thwarted by record prices earlier in the year.

There is no doubt in our minds that gold market fundamentals are extremely supportive for the metal at the moment, but that doesn’t matter for as long as the dollar is strong, UBS analyst John Reade said in a note.

Dollar strength has weighed on other precious metals, already under pressure from falling demand.

Spot platinum slipped to $1,383.00/1,395.00 an ounce from $1,392.00/1,412.00 late in New York.

Worries about falling demand for autocatalysts, a slowing US economy and profit-taking have dragged down platinum by around 40pc from its record high of $2,290 an ounce back in March.

Platinum’s sister metal palladium eased to $283.50/291.50 an ounce from $285.50/293.50. Silver dropped to $12.71/12.77 an ounce from $13.04/13.10.

—Reuters