Gold ends sharply lower as oil tumbles

By David Sheppard and Jan Harvey

LONDON (Reuters) - Gold ended sharply lower in volatile trading on Wednesday after oil prices dropped sharply for the second consecutive day, prompting a flurry a selling.

New York crude oil prices fell by more than $6 a barrel to touch a session low of $132, reducing gold's appeal as a hedge against fuel-led inflation.

Gold has been boosted in recent weeks as oil has broken a series of record highs. However, gold has come off as crude prices have now fallen by more than $10 in the past two days on fears of slowing demand. U.S. crude futures CLc1 ended down $4.14 at $134.60 a barrel.

"The liquidation we've seen in oil has definitely led to some profit-taking in gold," said TheBullionDesk.com analyst James Moore.

Spot gold <XAU=> sank to a session low of $959 and was at $963.10/964.10 by New York's last quote at 2:15 p.m. EDT, down from $975.90/977.90 an ounce late in New York on Tuesday, when it hit a four-month high of $987.75.

U.S. gold futures for August delivery GCQ8 settled down $16, or 1.6 percent, at $962.70 an ounce on the COMEX division of New York Mercantile Exchange.

Gold has been supported in recent days by tumbling stocks and a weak dollar, which on Tuesday hit a record low against the euro. <USD/>

But on Wednesday the dollar's recovery against the euro on optimism over stability in the U.S. financial system hit sentiment in gold, which earlier touched $969.30 an ounce.