* Dollar index near 10-week peak
* Net short position in gold smallest since mid-July-CFTC
* GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl (Recasts, adds comments and updates prices)
By Karthika Suresh Namboothiri and Sethuraman N R
BENGALURU, Oct 29 (Reuters) - Gold eased on Monday, sliding off a more than three-month peak in the previous session, pressured by a strong dollar and as investors returned to riskier assets following a recent sell-off in global stocks.
Spot gold was down 0.6 percent at $1,225.71 per ounce at 13:34 a.m. ET (1734 GMT). U.S. gold futures settled down $8.20, or 0.7 percent, at 1,227.60. “With the dollar strength we see this morning, it is hard for gold to see any rally,” said Bob Haberkorn, senior market strategist at RJO Futures
“Despite the volatility we have seen in equities (on Monday) if gold is still down so much, it shows you that the flight to safety is not going into gold but the dollar because of the outlook for higher rates.”
Prospects for higher U.S. interest rates hurt dollar-priced gold as they raise the opportunity cost of holding the bullion.
The dollar edged back toward Friday’s 10-week high against a basket of its key rivals, making gold more expensive for holders of other currencies.
U.S. stocks gained on Monday, following a broad rise in Europe after last week’s choppy sessions in global equity markets, which had prompted a flight to safer assets, and pushed gold to at $1,243.32, its highest since July 17 on Friday.
The dollar also edged higher against the euro after German Chancellor Angela Merkel said she would not seek re-election as head of her CDU party.
“Gold is now increasingly in need of supporting fundamentals to carry it higher. This after the tailwind from short covering begins to fade given the sharp reduction witnessed during the past few weeks,” said Saxo Bank analyst Ole Hansen.
Hedge funds and money managers cut their net short positions in gold to the smallest since mid-July, data showed.
Banks and brokerages have cut their average gold price forecasts for this year and 2019, but still expect prices to stage a modest recovery, a Reuters poll showed.
On the technical front, immediate support stood around the 14-day moving average, at $1,224, and then around $1,220, the 100-day moving average, said Alexander Zumpfe, a precious metals trader at Heraeus.
Some profit taking following recent gains also weighed on gold prices, he added.
Silver fell 1.3 percent to $14.42.
Palladium, which hit a record $1,150.50 an ounce last week, fell 0.9 percent to $1,094.30, while platinum climbed 0.5 percent to $834.
Palladium’s price premium over platinum will widen next year, a separate Reuters poll showed. Shortages of palladium and surpluses of platinum have flipped the usual hierarchy between the two metals, both used in catalytic converters to reduce vehicle emissions. (Additional reporting by Swati Verma and Arpan Varghese in Bengaluru; Editing by Jan Harvey, Susan Thomas and Richard Chang)