LONDON, Oct 4: Gold hit one-week lows on Thursday as the dollar recovered from its recent plunge against the euro and dealers said further losses were possible.

There was talk of sales by European central banks and the physical market saw investors cashing in their holdings on concern that bullion could slide further to $720 and then to $700 an ounce, a level last seen in early September.

Spot gold hit an intraday low of $723.60 an ounce before rebounding to $727.20/727.90 still down from $729.70/730.50 late in New York on Wednesday.

Precious metals have corrected from recent highs over the past few days as over-long positioning and a firmer US dollar have weighed on gold and platinum, said John Reade, head of metals strategy at UBS Investment Bank.

Gold has fallen more than 3 per cent since spiking to $747.65 on Monday, the highest since January 1980, but bullion investors remained upbeat due to firm oil, tensions in the Middle East, demand through exchange-traded funds and the US Federal Reserve’s recent surprise move to cut interest rates.

Gold often moves in the opposite direction of the dollar. We still feel that gold could possibly face a nasty correction if the dollar continues to strengthen, particularly if it makes a rapid move, Investec Australia said.

However in the medium to long term, we are bullish on gold and expect the metal to possibly even set new highs above $750 as safe-haven buying and strong investor interest continue to put upward pressure on prices,” it said in a daily report.

Investors await Friday’s payrolls report, which may shed further light on the health of the US economy.

In other bullion markets, the most active August 2008 gold contract in Tokyo ended 16 yen per gram lower at 2,748 yen. It had reached a 22-year high of 2,804 yen on Tuesday.

COMEX futures fell, with the most active December contract down $2.3 an ounce at $733.30 from the New York settlement. On Monday it hit a 28-year high of $755.70.

The gold market did not react to news that around 1,500 miners remained trapped more than a mile underground in a South African gold mine owned by Harmony Gold on Thursday after an all-night rescue mission.—Reuters