Gold drops to 4-month low as dollar jumps

By Tamora Vidaillet and Atul Prakash

LONDON (Reuters) - Gold ended lower after hitting a four-month low below $850 an ounce on Thursday, as a sharp rise in the dollar lowered gold's appeal as an alternative investment and triggered a sell-off in precious metals.

Silver and palladium hit three-month lows, while platinum shed 3 percent to a one-month low below $1,850 an ounce.

Gold fell as low as $847.10 an ounce after initially rising to a high of $881.30. It was last at $850.25/851.65 by New York's last quote at 2:15 p.m. EDT (7:15 p.m. British time), against $864.65/866.05 in New York late on Wednesday.

"I think $850 is enough for now, but longer-term I expect to see (gold at) the 200-day moving average, currently at $822, before the correction will be complete," Simon Weeks, managing director of precious metals at Bank of Nova Scotia, said.

"Sentiment has been bearish for a while, but it's time to take a breather around this level before moving lower again. We see some physical and technical buying, but I think there will be better bargains in the coming days."

Precious metals came under pressure mainly because the dollar rose to five-week highs against the euro after a key U.S. manufacturing index for April came in slightly better than expected.

A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. Falling oil prices also hit gold, which is viewed as a hedge against oil-led inflation.

U.S. crude oil futures ended down 94 cents at $112.52 a barrel. Crude hit a session of $110.30 a barrel, then rebounded on news of a supply disruption in Nigeria.