PRECIOUS-Gold slides sharply as oil surges on dimming hopes of end to Iran war

By Ishaan Arora

April 2 (Reuters) - Gold prices dropped sharply on Thursday, pulling back from two-week highs, as oil prices surged after U.S. President Donald Trump vowed continued attacks on Iran, fuelling inflation concerns and reducing U.S. rate-cut bets.

Spot gold XAU= was down 3% at $4,612.54 per ounce at 1131 GMT, while U.S. gold futures GCcv1 were down 3.6% to $4,637.70.

Bullion is still on track for about a 2.4% weekly rise after hitting its highest since March 19 on Wednesday before sliding more than 4% on Thursday in response to Trump's comments.

Oil prices climbed nearly 8% on Thursday after Trump said the U.S. would continue to strike Iran and was nearing "completion of its main strategic objectives" in the conflict. That disappointed investors who had hoped for clearer signals of an end to hostilities. O/R

"It's been the case since the start of the war that gold prices are negatively correlated to oil prices," said Bernard Dahdah, an analyst at Natixis.

"After Trump's comments, oil prices went up and as oil prices go up by 6%-7%, there are inflationary concerns, which leads the market to believe that the Fed wouldn't cut rates and that is what is driving gold prices down."

The 10-year U.S. Treasury yield and the dollar index both advanced, making non-yielding gold less attractive. USD/ US/ MKTS/GLOB

"The dollar has emerged as the preferred safe haven, capping flows to gold, while higher-for-longer Fed expectations reinforce this negative dynamic. Still, structural demand drivers remain intact and the precious metal could yet reclaim its bullish bias" to reach new all-time highs, Nikos Tzabouras, senior market analyst at Jefferies-owned Tradu.com, said in a note.

In other metals, spot silver XAG= was down 5.8% to $70.80, having earlier dropped over 7%, platinum XPT= fell 2.3% to $1,918.60 and palladium XPD= shed 0.9% to $1,459.31.