Gold's luster continues to fade

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NEW YORK (CNNMoney.com) -- Gold prices fell for the third day in a row on Tuesday as the U.S. dollar continued to strengthen.

February gold fell $32 to settle at $1,131.40 an ounce. Gold prices have tumbled 7% since hitting an all-time high of $1,218.30 on Thursday.

The retreat came as the U.S. dollar regained ground against rival currencies, undermining demand for gold as an alternative investment.

"The dollar is strong today, and gold has been trading against the dollar," said Joe Foster, portfolio manager for the Van Eck Global International Investors Gold Fund. He said prices could continue to decline for the next few weeks before climbing anew next year.

The dollar gained 0.9% versus the euro to trade at $1.4693, its highest in over a month. The greenback was up 0.1% against the UK pound at $1.6274.

Despite the recent weakness, gold has rallied over the last few months, hitting a series of all-time highs in November, as traders bet the U.S. dollar will remain weak for a long time.

A weaker greenback tends to support prices for commodities like gold that are priced in dollars around the world.

But investors began to reconsider the outlook for the dollar on Friday following a much better-than-expected report on the U.S. labor market.

"When the market sees signs of strength in the economy, it interprets it as giving room for Fed to raise rates and support the dollar," Foster said.

The Federal Reserve has slashed interest rates to historic lows near zero percent to help bring about an economic recovery. As a result, the U.S. dollar has depreciated significantly against rival currencies this year.

Fed officials have repeatedly said that interest rates will remain low for an extended period as the economy slowly recovers. On Monday, Fed Chairman Ben Bernanke said the recovery continues to face "formidable headwinds" and reiterated that inflation is not a deep concern.