Gold hits 2-week low, under $1,040 as dollar jumps

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold prices fell to their lowest level in more than two weeks on Monday, taking a cue from currencies as the dollar jumped 1 percent against the euro, with weak physical demand for the precious metal also weighing.

A suddenly resurgent dollar prompted selling across asset classes from equities to oil to other commodities. Profit taking was cited as gold had rallied in the past two months as the dollar steadily weakened.

"It's clearly dollar-euro related. I don't think many people are surprised by the minor correction," said Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading.

Even with Monday's decline, gold has still risen 5 percent in the past 30 days, and is up almost 20 percent year to date.

Technical selling in gold accelerated after prices broke below support at the 14-day moving average, analysts said.

Spot gold was at $1,037.90 an ounce at 2:53 p.m. EDT (1853 GMT), against $1,053.95 late in New York on Friday. Bullion hit a low of $1,038.25 earlier in the session -- a price last seen on October 7.

U.S. December gold futures settled down $13.60, or 1.3 percent, at $1,042.80 an ounce on the COMEX division of the New York Mercantile Exchange.

"The relationship between gold and the dollar on a daily basis is still very strong," said Daniel Major, analyst at RBS Global Banking and Markets. "Since gold broke above $1,000, it has outperformed the euro/dollar slightly, i.e. it moved up faster than the dollar devalued, but for the last week or so it seems to be consolidating."

The dollar rose 1 percent against the euro on Monday, bouncing off 14-month lows after riskier assets, such as U.S. stocks, fell. <USD/>

Strength in the U.S. currency makes gold less attractive for holders of other currencies, as well as denting interest in gold as an alternative asset.

While falls in stock markets usually boost gold's safe-haven appeal, they have recently sent investors running for the perceived safe haven of the dollar over that of gold.

"The gold price rally of the past weeks was largely the result of a softer U.S. dollar. Without further USD weakening, gold would lose one major price supporting factor ...," Commerzbank said in a note to clients.

"The physical demand in India has already weakened significantly. Most recently, gold ETFs have not seen any meaningful inflows of late. We continue to see the downside risk of a price correction in gold."

WEAK DEMAND

Demand from jewelers and investors alike remained relatively soft, weighing on gold.