Gold falls to 3-week low as dollar gains strength

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Gold futures on the COMEX Division of the New York Mercantile suffered a sharp drop on Monday, falling to the lowest level in more than three weeks, as a stronger U.S. dollar dampened the demand for gold investment.

The most active gold contract for Dec. delivery slumped 35.8 U. S. dollars, or two percent, to 1,778.9 dollars per ounce.

Market analysts said that although the growing concerns over the potential for Greek debt default helped support the gold market earlier in the day, a stronger dollar, which usually reduces the appeal of gold as an alternative investment, became the focus of the market.

The Dollar Index, which compares the dollar's value to a basket of six other currencies, hiked 0.5 percent on Monday to 76. 968. A higher dollar is usually negative for commodities as it makes them more expensive for holders of other currencies.

However, given ongoing problems in the euro zone and the financial system, safe-haven demand should remain strong, so the gold market would be well supported in the long run, said a trader.

EU finance heads in Saturday's meeting broke no new ground in dealing with the crisis and made no decision on whether to added money to bailout fund, intensifying market concerns over the insolvency of Greece.

Besides, investors would focus on a policy meeting of the U.S. Federal Reserve on Tuesday and Wednesday. Any announcement of further stimulus for the economy could help buoy up gold prices.

Meanwhile, silver for Dec. delivery lost 1.668 dollars, or four percent, to 39.163 dollars per ounce. Platinum for Oct. delivery also shed 41.9 dollars, or 2.3 percent, to 1772 dollars per ounce.