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Gold dropped thanks to a stronger dollar

Gold dropped on Monday as it record rally paused thanks to a stronger dollar and promising U.S. housing data, but renewed financial worries in some euro zone countries provided underlying support.

Gold dropped thanks to a stronger dollar

Bullion broke a six-session string setting all-time highs, as the euro pulled back against the dollar on renewed concerns about the financial viability of euro zone banks. Wall Street stock indexes also fell more than 1 percent.

Michael Daly, gold specialist at Chicago-based futures broker PFGBest, said gold's weakness stemmed from anxiety related to a key non-farm payroll report due Friday.

"There are a lot of apprehensions in the uncharted territory. Bullion investors may opt to take profit and reenter the market after a brief pullback," Daly said.

Spot gold eased 0.1 percent at $1,314.70 an ounce at 4:02 p.m. EDT (2002 GMT). It hit a record at $1,320.80 an ounce on Friday. U.S. gold futures for December delivery settled down $1 at $1,316.80.

A report showing pending sales of previously owned U.S. homes rose to a four-month high in August helped boost the dollar and took some steam out of bullion.

Gold's advance to consecutive highs last week after a string of unimpressive U.S. data reports and comments from Federal Reserve officials reinforced expectations of further monetary easing.

Renewed concerns about the stability of the euro zone also increasing gold's appeal as a safe haven and contributed to the bullish scenario that has lured investors of all types into gold.

The U.S. Mint said on Monday it will resume offering the popular one-ounce American Eagle silver proof coins, highlighting strong investment demand for the white metal.

But a reversal of the dollar on Monday, as bad news from Ireland, Portugal and Greece overshadowed concerns the Federal Reserve may further ease U.S. monetary policy, undermined a negative for the U.S. currency and a support for gold.

The Irish central bank said on Monday that Ireland's economy will crawl to a virtual halt this year, defying government hopes of modest growth, underlining the challenge the country's leaders face to revive its fortunes.

The usual inverse relationship between gold and dollar has showed signs of strengthening of late. The 25-day correlation between the metal and the U.S. currency has increased to a negative 0.4, the strongest inverse link since May.

However, fading upward momentum in an overly bullish market could trigger pullbacks, one technical analyst said.

Gold could head for a $50-75 short-term pullback based on bearish signals, said Rick Bensignor, chief market strategist at investment banking group Execution Noble, citing a study called the DeMark Sequential model and a 91 percent daily bullish sentiment index.

Analysts are now eyeing key U.S. non-farm payrolls data due on Friday for clues as to the next direction of the dollar.

Source : Reuters