* Gold, silver, platinum slip to three-week lows
* Disappointing U.S. homes data knocks stocks, lifts dlr
* Largest gold ETF sees outflow
(Updates prices, adds comment)
By Jan Harvey
LONDON, Oct 28 (Reuters) - Gold prices fell to a three-week
low in Europe on Wednesday, breaking through technical support
above $1,030 an ounce, as the dollar index <.DXY> firmed,
denting interest in the precious metal as an alternative asset.
Gold is also suffering from weakness in physical demand,
with the world's largest gold exchange-traded fund reporting a
second daily outflow on Tuesday, and a pick-up in scrap supply
returning to the market, dealers said.
Spot gold <XAU=> was bid at $1,026.70 an ounce at 1653 GMT,
against $1,038.80 late in New York on Tuesday. Earlier it
touched a low of $1,026.60 an ounce.
"We know there is an increase in scrap supply, we know that
jewellery demand is weak, and we know that ETF demand has
flattened off," said HSBC analyst James Steel.
"So the odds were that we would get some sort of a
correction, and clearly it has been fostered by the dollar
recovery."
He said gold was likely to continue to mirror the dollar.
"Our dollar view is that this is a correction rather than a
change, and we are still positive on the euro, which would imply
that there will be limited downside to gold," he said.
U.S. gold futures for December delivery <GCZ9> on the COMEX
division of the New York Mercantile Exchange fell $7.70 to
$1,027.70 an ounce.
Gold is under pressure from a rise in the dollar index,
which gauges the unit's performance versus six major currencies.
The dollar has benefited from a slide in global stock markets,
which prompted traders to cut risk exposure. []
European shares hit a three-week low on Wednesday and
extended losses after data showed sales of U.S. new homes
unexpectedly fell in September. [] []
U.S. equities also tumbled while world stocks
<.MIWD00000PUS> slid to three-week lows as investors worried
about the pace of economic recovery. []
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Analysts say this week's gold price correction is
unsurprising, given the strength of its upward move since early
September, which took the metal to a record $1,070.40.
Calyon metals analyst Robin Bhar said while interest in
physical gold jewellery and ETFs was waning, possibly supporting
the case for a further pullback, both this and the dollar
rebound looked to be temporary.
"All the longstanding 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," he said. "The uptrend remains intact."
Physical gold demand remains relatively lacklustre, with the
largest gold ETF, New York's SPDR Gold Trust <GLD>, reporting a
second consecutive daily outflow on Tuesday. []
Gold buyers in India, the world's biggest bullion consumer
last year, trickled in as falling prices sparked some bargain
hunting, but a weak rupee dented buying interest. []
Among other precious metals, spot silver <XAG=> was the
biggest faller, as losses in gold pressured it to a three-week
low of $16.14 an ounce against $16.65.
Platinum <XPT=> was at $1,298.50 an ounce against $1,312,
having hit its lowest since Oct. 6 at $1,297, while palladium
<XPD=> was at $317.50 against $325.50.
The metals are being supported by supply concerns in major
producer South Africa and hopes demand from carmakers, the main
buyers of platinum and palladium, will improve.
(Editing by Sue Thomas)
