gopalakrishna

SINGAPORE (Reuters) - Gold regained strength on Thursday after an earlier drop to a two-week low attracted buying from jewelers, the electronics sector and bargain hunters, but losses in oil may limit gains.

Platinum also bounced after hitting a six-month low but sentiment was bearish on fears of falling demand from car makers, such as General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz), given a slowing U.S. economy.

Gold fell as low as $916.40 an ounce, its lowest since July 9, before rebounding to $922.60/923.60 an ounce, up from $921.35/922.95 late in New York on Wednesday but still well below a record high of $1,030.80 hit in March.

"There's a little bit of physical buying. I think the market should retest $910 to see whether or not it can hold," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

Dealers in Singapore also reported light physical buying, while in Japan purchases from the electronics sector helped offset persistent sales from retail investors.

Oil extended losses and hit a seven-week low of $123.89 a barrel after data showed a larger-than-expected increase in domestic U.S. gasoline stocks last week.

In theory, a weaker oil price reduces gold's appeal as a hedge against inflation.

"Weaker oil prices, a stronger dollar, both of these are negative for gold. I just think there's a good possibility that we might see a continuation of a fall in oil prices," said Darren Heathcote of Investec Australia in Sydney.

"I've got to say I didn't foresee gold sort of breaking through the $936 area as easily as it did. But now it's here. We've got to be targeting $912-$904 or something like that," he said.

Declines in holdings on SPDR Gold Trust in New York, the world's biggest gold-backed exchange-traded fund, to around 673 tonnes this week from a record above 705 tonnes in mid-July, suggested there was a shift to equities, said dealers.

Platinum dropped to $1,722.00/1,742.00 an ounce from $1,744.00/1,764.00 an ounce. It tumbled to $1,702.50 an ounce on Thursday, its lowest level since late January.

"The next support is $1,684 but if we break this level, it's a long long way down to the $1,590 regions," said a dealer in Singapore.

Platinum struck a record at $2,290 in March after an electricity shortage that disrupted mining in main producer South Africa triggered speculative buying, but a combination of profit taking and demand fears erased most of the gains.

Spot palladium fell to $382.00/390.00 an ounce from $383.00/391.00 late in New York. It hit an intraday low of $371.50 an ounce, its lowest level since January 25.

Silver edged up to $17.39/17.45 an ounce from $17.33/17.38 late in New York, off a three-week low of $17.26.

Gold futures for August delivery on the COMEX division of the New York Mercantile Exchange added $0.3 to $923.10 an ounce.

The most active Tokyo gold contract for June 2009 delivery on the Tokyo Commodity Exchange fell 46 yen per gram to 3,229 yen.

__________________
[SIZE="2"][/size]