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Gold prices GC-FT ended lower on Wednesday, hitting three-week lows and breaking below technical support at $1,030 (U.S.) per ounce, as a resurgent dollar eroded the precious metal's standing as an alternative asset.

Dealers said gold also suffered from a drop in physical demand, as the world's largest gold exchange-traded fund reported a second daily outflow in bullion holdings.

U.S. gold futures' most-active contract, December, settled down $4.90, or 0.5 per cent, at $1,030.50 an ounce on the Comex metals division of New York Mercantile Exchange.

Spot gold was bid at $1,027.75 an ounce at 4 p.m. ET, against $1,038.80 late in New York on Tuesday. Earlier it touched a low of $1,026.35 an ounce.

Analysts said the correction was not surprising, given the strength the precious metal had exhibited since early September. Still, few were willing to bet that the rally in gold was over.

“Gold is behaving in textbook fashion,” Calyon metals analyst Robin Bhar told Reuters. “All the long-standing bull factors for gold – inflation, dollar weakness, unhappiness with the monetary system as it stands and what governments are doing to their paper currencies – are still there. The up trend remains intact.”

Gold was under pressure from a rise in the dollar index, which gauges the U.S. unit's performance against six major currencies. The dollar has benefited from a slide in global stock markets this week, prompting traders to cut risk exposure.

In Wednesday's session, safe-haven demand for gold was boosted by a report showing an unexpected fall in U.S. new home sales for September.

Sales of new single-family homes fell 3.6 per cent to an annual pace of 402,000 units from a downwardly revised 417,000 units in August, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected sales to rise to a 440,000-unit pace.

The home sales figures offset a bright spot provided by U.S. durables goods orders, which rose a solid 2 per cent in September.

European shares hit a three-week low and extended losses, as did U.S. equities, after the U.S. homes sales data as investors worried about the pace of economic recovery.

From a technical perspective, support for a move higher in gold is reliant on it holding firm above $1,023 an ounce, said analysts who study past price charts to determine future moves.

“Failure at $1,023 would indicate that a slip towards the 55-day moving average at $1,001.71 and the major psychological $1,000 mark is probable.”

Physical gold demand remains relatively lacklustre, with the largest gold ETF, New York's SPDR Gold Trust, reporting a second consecutive daily outflow on Tuesday.

Gold buyers in India, the world's biggest bullion consumer last year, trickled in as falling prices sparked some bargain hunting, but a weak rupee dented buying interest.

Among other precious metals, spot silver SI-FT was the biggest faller, as losses in gold pressured it to a three-week low of $16.09 an ounce against $16.65.

Platinum PL-FT was at $1,300 an ounce, against $1,312, having hit its lowest since Oct. 6 at $1,297, while palladium PA-FT was at $314.50, against $325.50.