Gold rallies as dollar beats retreat from multi-month highs

By Swati Verma

BENGALURU (Reuters) - Gold rose on Thursday, rebounding from a three-week low touched in the previous session as the dollar's retreat from multi-month highs made the metal less expensive for holders of other currencies.

After falling for three days, spot gold was up 0.8 percent at $1,223.08 per ounce at 1116 GMT. The metal hit its lowest since Oct. 11 on Wednesday at $1,211.52 per ounce. U.S. gold futures were up 0.8 percent at $1,225.00 an ounce.

The dollar index, which measures the U.S. unit against a basket of six major currencies, was down 0.4 percent, falling from a 16-month high hit in the previous session on the back of continued U.S. economic strength.

"Although a rally is not yet foreseeable, $1,250 will be the level to watch for should the dollar weaken further or equities disappoint," Commerzbank analyst Eugen Weinberg said.

Global stocks started the new month on firmer ground after a brutal October, while sterling rallied on reports that Britain and the European Union are close to a post-Brexit deal on financial services. [MKTS/GLOB]

Attention is now turning to the U.S. congressional elections on Nov. 6, which will determine whether the Republican or Democratic party controls the U.S. Congress, with some predicting increased market volatility on the outcome.

Friday's non-farm payrolls data, a key indicator of the strength U.S. economy, is also being awaited for further clues on the pace of Federal Reserve rate increases.

"I think a strong number may not be able to knock the gold price substantially because investors have already priced in the bullish stance of the Fed," Think Markets UK chief markets analyst Naeem Aslam said.

Meanwhile, global gold demand rose slightly in the third quarter from a year before as resurgent buying from central banks and retail consumers balanced huge outflows from exchange traded funds, the World Gold Council said.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.12 percent to 754.06 tonnes on Wednesday.

Among other precious metals, platinum climbed 1.5 percent to $848.50 per ounce, having touched its highest since July 10 at $851.90 earlier in the session.

Silver gained 1.4 percent to $14.41 per ounce, while palladium was down 0.1 percent to $1,076.96.

(Reporting by Swati Verma in Bengaluru; Editing by Jan Harvey)