Gold falls below $1,030/oz as dollar recovers

By Barani Krishnan and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices ended lower on Wednesday, hitting 3-week lows and breaking below technical support at $1,030 per ounce, as a resurgent dollar eroded the precious metal's standing as an alternative asset.

Dealers said gold also suffered from a drop in physical demand, as the world's largest gold exchange-traded fund reported a second daily outflow in bullion holdings.

U.S. gold futures' most-active contract, December, settled down $4.90, or 0.5 percent, at $1,030.50 an ounce on the COMEX metals division of New York Mercantile Exchange.

Spot gold was bid at $1,027.75 an ounce at 4 p.m. EDT (2000 GMT), against $1,038.80 late in New York on Tuesday. Earlier it touched a low of $1,026.35 an ounce.

Analysts said the correction was not surprising, given the strength the precious metal had exhibited since early September. Still, few were willing to bet that the rally in gold was over.

"Gold is behaving in textbook fashion," Calyon metals analyst Robin Bhar told Reuters. "All the long-standing bull factors for gold -- inflation, dollar weakness, unhappiness with the monetary system as it stands and what governments are doing to their paper currencies -- are still there. The up trend remains intact."

Gold was under pressure from a rise in the dollar index, which gauges the U.S. unit's performance against six major currencies. The dollar has benefited from a slide in global stock markets this week, prompting traders to cut risk exposure. <FRX/>

In Wednesday's session, safe-haven demand for gold was boosted by a report showing an unexpected fall in U.S. new home sales for September.