European gold tumbles to three-week lows

Gold fell 2.7 percent to a three-week low on Monday as a rise in the dollar and easing oil prices prompted some investors to sell their positions. But the decline was expected to attract physical buyers and bargain hunters, who could support the market, dealers said.
"There is a bit of dollar strength which is kicking it lower. The sentiment is: Sell it now and buy the dips," said a precious metals trader in London.
"I think it will bounce, but they are going to try to push it lower before it goes up again."
Gold fell as low as $603.10 an ounce, its lowest since June 30, and was quoted at $604.00/604.75 by 1438 GMT, against $619.50/621.00 in New York on Friday when it dropped nearly 2 percent.
The dollar gained broadly, thanks to a smattering of overnight buying against the euro, which failed to break through some key technical levels.
"Overall, we expect trading to remain nervous and volatile as markets lack a clear sense of direction," Barclays Capital said.
Spot gold climbed to a two-month high last Monday on safe-haven buying as fighting between Israel and Hizbollah guerrillas in Lebanon escalated.
"The market seems to be downgrading the political risk associated with events in the Middle East. Oil prices are failing to react to further fighting in Lebanon, and this is removing a reason for gold to rally," James Steel, analyst at HSBC Bank, said in a daily note.
US Secretary of State Condoleezza Rice flew unannounced to Beirut on Monday to seek a "sustainable" cease-fire in Lebanon, where Hizbollah guerrillas were battling an Israeli tank incursion in the south.
Oil slipped below $74 a barrel due to diplomatic efforts to resolve the conflict in the Middle East, a region that pumps almost a third of the world's oil.
"The market could not break out on the upside level. I think that has sent bearish signals to the market," said a dealer in Hong Kong, referring to the heavy selling after gold touched around $636 an ounce last Friday.
Physical buying picked up in India, the world's largest gold consumer, ahead of the busy festival season that starts in a couple of weeks.
In other precious metals, spot platinum fell to $1,184.50/1,192.50 an ounce from $1,206/1,212 late in New York, while palladium was up $1 at $302/307. Silver fell to $10.69/10.79 an ounce from $10.78/10.88.