Gold expected to drop below one-week low

Salesmen at a jewellery shop attend to their customers in Hyderabad July 6, 2009.

MUMBAI (Reuters) - Indian gold is likely to extend losses past its lowest level in a week, hit on Monday, weighed by a stronger dollar overseas, considered an alternative to the yellow metal.

The dollar and gold often move in opposite directions as the two compete for funds globally. The euro slipped against the dollar on Monday as traders awaited clarity on when Spain would request a bailout to shore up its battered finances.

"Gold is likely to correct a bit on strong dollar," said Harish Galipelli, vice president of JRG Wealth Management.

The most active gold for December delivery on the Multi Commodity Exchange (MCX) was 0.40 percent lower at 31,159 rupees per 10 grams, after hitting a low of 31,118 rupees, a level last seen on October 8.

Selling is advised in gold at 31,250 rupees, for a target of 30,700 rupees, with a stop loss of 31,520 rupees, said Galipelli.

A revival in gold demand, triggered by a sharp decline in prices, could keep the downside limited.

The festival and wedding season will start picking up in late October and peak next month during Diwali and Dhanteras, traditionally occasions for buying gold.

Silver futures are also likely to fall past their lowest levels in a month.

Silver for December delivery was 0.75 percent lower at 60,742 rupees per kg, after hitting a low of 60,622 rupees, a level last seen on September 5.

Selling could be initiated in silver at 61,500, for a target of 58,500 rupees, said Galipelli. (Reporting by Siddesh Mayenkar; Editing by Anupama Dwivedi)