Gold Falls to Five-Week Low as Dollar Advances; Silver Drops

Jan. 14 (Bloomberg) -- Gold prices fell to a five-week low as gains by the dollar eroded the appeal of the precious metal as an alternative investment. Silver also dropped.

The dollar climbed for the fourth consecutive session against a weighted basket of six major currencies. Some investors hoarded cash on concern that the economy’s slump is accelerating. Sales at U.S. retailers fell more than twice as much as forecast in December amid escalating job losses and a credit crunch.

“The fact that the recession is deepening is making people very jittery,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Money is flowing back to the dollar. Gold is looking pretty vulnerable. People haven’t been buying metals for safety.”

Gold futures for February delivery fell $11.90, or 1.5 percent, to $808.80 an ounce on the Comex division of the New York Mercantile Exchange, the lowest settlement since Dec. 10.

Silver futures for March delivery dropped 20.5 cents, or 1.9 percent, to $10.475 an ounce. The metal slumped 24 percent in 2008, while gold gained 5.5 percent.

Treasuries rose on demand for government bonds as a haven. The Standard & Poor’s 500 Index dropped as much as 4 percent and the Reuters/Jefferies CRB Index of 19 raw materials declined as much as 1.9 percent.

‘Flight to Quality’

“The Treasury market is where people have gone,” Zeman said. “It’s a flight-to-quality day, and people want to get out of everything.”

Gold and other metals generally move in the opposite direction of the dollar. Gold’s gains last year were the smallest since 2004 as the U.S. currency advanced for the first time since 2005.

U.S. retail sales were down for the sixth straight month, the longest slump since 1992, Commerce Department data showed today.

The dollar has gained 3.7 percent this month against the currency basket after climbing 12 percent in the second half of 2008.

“The greenback’s rally has further to run, and it is not the bounce of a cat in rigor mortis,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. “The question is: How much cash will some wish to raise to head for the hills with?”