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By Bloomberg

Gold fell near the lowest level since January, set for the biggest monthly decline in 15, as a stronger dollar and signs of an improving U.S. economy cut demand for a protection of wealth.

The metal has fallen 6 percent in September, the most since June 2013. It dropped on Sept. 25 to within 0.5 percent of erasing this year's gains, which were fueled partly by tensions in Ukraine and the Middle East. The Bloomberg Dollar Spot Index reached a four-year high today and is set for the largest quarterly increase since 2008.

Bullion sank 28 percent in 2013 on expectations the Federal Reserve will reduce asset purchases. The dollar has climbed amid improving U.S. economic data, as Fed policy makers raised interest-rate forecasts, while central banks in Europe and Asia maintained or expanded stimulus to spur economic growth. Gold prices near $1,200 an ounce may draw more physical demand, UBS AG wrote in a report today.

"The divergence in monetary policies between the Fed and other central banks will further push up the dollar and weigh on gold," Zhu Runyu, an analyst at CITICS Futures Co., a unit of China's biggest listed brokerage, wrote in an e-mail today. "As geopolitical tensions fade, gold has also lost a key price support this year."

Gold for immediate delivery fell 0.4 percent to $1,210.94 by 10:28 a.m. in London, according to Bloomberg generic pricing. It reached $1,207.04 on Sept. 25, the lowest since Jan. 2, and is set for an 8.8 percent drop this quarter. Gold for December delivery lost 0.7 percent to $1,210.80 on the Comex in New York.

Higher interest rates reduce gold's allure because the metal only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.

Trading Volume

Futures trading volume was about the average for the past 100 days for this time of day, data compiled by Bloomberg show.

"There is a general expectation that prices close to or below $1,200 will draw a greater reaction from physical buyers and opportune investors," UBS wrote in the note, after visiting Asia last week. "A rush to physical will not take hold, not unless prices fall closer to $1,100. Some thought further modest declines were possible, while others felt the market had found a bottom and should be supported around these levels."

In China, volumes for the benchmark spot contract on the Shanghai Gold Exchange fell today after reaching a 17-month high yesterday. The week-long Golden Week holiday in China starts tomorrow.

Silver for immediate delivery fell 0.7 percent to $17.3779 an ounce in London. It reached $17.3491 on Sept. 22, the lowest since July 2010, and slid 17 percent this quarter.

Palladium fell 0.7 percent to $784.85 an ounce, after touching $778 in each of the previous two sessions, the lowest since April 22. It's dropped 13 percent this month, the most since September 2011. Platinum fell 0.4 percent to $1,303 an ounce, after reaching $1,296.37 yesterday, the lowest since June 2013. It's down 12 percent this quarter, the most in more than a year.