Gold futures closed at their lowest level in more than two months Friday, marking a third-straight session of declines to tally a more than 2% decline for the week, as renewed dollar strength and talk of European central bank gold sales triggered fresh selling of the metal by funds

"Gold's sharp sell-off can be attributed to a failure once again to the rise above key resistance at $640, a short covering rally in the U.S. dollar, and potential European central bank gold sales as yearly sales quota ends September 26th," said Peter Grandich, editor of the Grandich Letter.

Gold for December delivery closed at $617.30 an ounce on the New York Mercantile Exchange, down $7.60 for the session and down $15.30 from a week ago. That was the lowest closing level for the contract since June 29 and it's tallied a loss of $29.60 in three sessions, with news of rising production in China and major mine expansion in South Africa adding to the downdraft. Prices topped out at close to $648.50 intraday on Sept. 5 and they've been ever since.

December silver futures also dropped to $12.09, its lowest level since Aug. 29 before closing down 40 cents, or 3.2%, at $12.295 an ounce. It was down 5.9% from last Friday's closing level.

"Gold's inability to consolidate above $632 coupled with further expected strength in the dollar doesn't bode well for the yellow metal today..." analysts at South Africa's Standard Bank cautioned in a note.

"For the bulls in the market support at $607 is crucial now and a break of this level will certainly initiate technical selling from the funds," they said.

Analysts at research firm Action Economics said gold was also under pressure from talk that at least one European central bank has been selling the metal.

"Good demand is likely under $610 in gold, where physical buyers showed their hand in some size last week," they said.

"Investors should use this fund-driven selling to buy," said Ned Schmidt, editor of the Value View Gold Report.
Price bottom?

But for now, "the growing apprehension among some gold bugs now, is that we may first see $570 or worse ($540) in lieu of $640, in a repeat of the May price slump," said Jon Nadler, an investment products analyst at bullion dealer Kitco.com.

"Although some shorter-term moves can, and have been built on geopolitical problems and on the gyrations in crude oil, ... at the end of the day the bullion market needs the foundation of offtake that it depends on in the largest proportion," he said.

"Traders will return next week and start anew, as the market awaits a fresh batch of orders from jewelers [and] they will certainly be needed, as there is not much bullish material found in the news on oil, the dollar and Iran," he said.

The dollar traded higher against the euro, Japanese yen and British pound, easing investment demand for gold.

Oil futures fell under $67 a barrel to touch their lowest level since late March.

On the broader political front, the United Nations Security Council met in Berlin to discuss their next steps in their dispute with Iran over its uranium enrichment program, with a senior European diplomat saying the meeting was "productive," according to AFP.

On a visit to the U.S., former Iranian President Mohammed Khatami said the only way to improve relations between the two countries was through dialogue.

Other metals were sharply lower Friday. October platinum lost $27.40, or 2.2%, to end at $1,229.50 an ounce and December palladium closed down $21.90, or 6.2%, at $333.60 an ounce, with both ending the week on a negative note. December copper fell 8 cents to close at $3.568 a pound, but that's up 3.1% from a week ago.

On the supply side, gold inventories were unchanged at 7.83 million troy ounces as of late Thursday, according to Nymex data. Silver supplies were flat at 104.2 million troy ounces and copper supplies were up 145 short tons to 12,088 short tons. Bankruptcy