Gold drifts lower as dollar climbs on European uncertainty

By Marcy Nicholson and Eric Onstad

NEW YORK/LONDON (Reuters) - Gold slipped from a three-month peak on Tuesday, pressured by earlier strength in the dollar as the euro fell on weak German industry data and nervousness ahead of the French elections.

Spot gold was down 0.2 percent at $1,233.40 an ounce by 3:18 p.m. EST (2018 GMT), after rising to $1,235.78, its highest since Nov. 11.

U.S. gold futures settled up 0.3 percent at $1,236.10.

While controversy over U.S. President Donald Trump's temporary travel ban on people from seven Muslim-majority countries has recently boosted the dollar and gold as safe-haven assets, focus shifted to Europe on Tuesday.

"For all of the issues that are raised by Trump, we have to remember it's a two-sided story for the dollar and what's happening in Europe is just as important," said Tom Kendall, head of precious metals strategy at ICBC Standard Bank.

"Today the figures were very disappointing in German manufacturing."

Weaker output in manufacturing and construction drove the biggest monthly drop in German industrial production in nearly eight years in December.

The euro fell against a broadly stronger U.S. dollar as investors feared far-right, eurosceptic candidate Marine Le Pen was gaining momentum before France's presidential election.

The dollar index , which measures the greenback against a basket of currencies, pared gains and was last up 0.04 percent.

The prospects of further U.S. interest rate hikes was also a concern for gold, said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

But gold has recently appreciated as an asset whether in euros, yen, pounds or dollars, said Matt France, head of institutional metals sales in Asia for broker Marex Spectron.

"This is a genuine re-allocation into gold as a safe-haven trade, not just a reactive trade to U.S. dollar moves," he said in a note.

Among other precious metals, silver fell 0.2 percent to $17.70 an ounce after rising to $17.79, its strongest since Nov. 11.

Platinum shed 0.7 percent at $1,004.65, after hitting its highest since Nov. 9 at $1,015.20.

"Falling projections of diesel's share of the European auto market could reduce our forecast of European autocatalyst demand by 163 thousand ounces (koz) in 2020, keeping the platinum market in surplus for the foreseeable future, ceteris paribus," said Standard Chartered in a note.

"While we believe much of the negative press surrounding diesel vehicles is already priced into platinum, this and fragile jewelry demand are the two key price drivers this year."

Palladium dropped 1.5 percent at $760.75.

(Additional reporting by Arpan Varghese and Nallur Sethuraman in Bengaluru; Editing by Meredith Mazzilli)