Gold rose for a third straight day on Wednesday on a weaker dollar and strong Asian physical demand, while platinum and palladium hit multi-year highs on an improving global economic outlook.

Silver was slightly lower after initially rallying 2 percent on news that sales of U.S. Mint American Eagle silver coins rose to a record in January. One coin dealer said sales of silver products are close to the level they hit in the fourth quarter of 2008 during the worst financial crisis since the Great Depression.

The dollar fell to an eight-week low against the euro on growing hopes euro zone officials will navigate the sovereign debt crisis.

Gold's average hourly inverse correlation with the dollar tightened to its strongest level in about a week. Last week, successful European bond sales boosted the euro while reducing safe-haven demand for bullion.

Physical demand in Asia also underpinned gold prices.

Given that we're now in the run-up to the Lunar holidays, we have seen some strong physical demand materializing in China and reports about bar premiums trading at two-year highs and mint shortages, so there's good physical demand on the downside providing a cushion to prices, said Barclays Capital analyst Suki Cooper.

Spot gold climbed 0.1 percent to $1,368.76 by 3:42 p.m. EST (2042 GMT), while U.S. gold futures settled up $2 at $1,370.20.

Spot silver eased 0.6 percent to $28.68 an ounce.

Turnover in U.S. gold futures totaled 150,000 lots, 4 percent below the 30-day average, but volume in COMEX silver was about 45 percent higher, preliminary Reuters data showed.

Silver prices are down about 7 percent in January versus gold's 3.5 percent decline. Sales of one-ounce silver American Eagle coins have already hit 4.6 million this month, the Mint's website showed, an all-time monthly high since the coin's introduction in 1986.

The previous record was 4.3 million silver coins sold in November.

Market watchers said silver prices have declined enough to attract buyers seeking exposure in precious metals and those who expect industrial demand for silver to grow.

People are generally thinking that the economy is improving. Since silver has such a higher use than gold from an industrial standpoint, if you are going to be exposed to precious metals right now, silver is the way to go, said David Beahm, vice president of U.S. retail gold coins dealer Blanchard & Co.

HOUSING DATA BRIGHT, EUROPEAN DEBTS EYED

Economic worries boosted gold after weaker-than-expected U.S. data on groundbreaking for new homes. But talk that Greece may not be able to repay its debts limited the dollar's losses against the euro, pressuring gold.

Peter Buchanan, senior economist at CIBC World Markets said that European countries are not out of the wood yet regarding their burgeoning debt.

Their debts are at such a high level that there is a good probability at some point we are going to see them restructuring their debt, which is going to benefit gold, Buchanan said.

Gold, which rose 30 percent last year, has fallen more than 3 percent this month as investors took profits and put more cash into assets such as equities and industrial commodities.

Platinum rallied to its highest since July 2008, taking heart from the strength in global equities and other industrial commodities.

Both platinum and palladium have seen strong fund interest since the start of the year, based on expectations for robust growth in emerging economy car markets and an improvement in the European auto industry.

Spot platinum rose to $1,845.50 an ounce, its highest since July 2008, before easing to show a 0.2 percent gain on the day at $1,827.49.

Palladium also set a ten-year high at $825.50 an ounce. It ended down 0.3 percent at $808.

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