Gold Falls as Dollar Rally Curbs Investor Demand; Silver Drops

June 8 (Bloomberg) -- Gold slid to the lowest in almost two weeks as the dollar gained, reducing the appeal of precious metals as an alternative investment. Silver also declined.

The U.S. Dollar Index, a six-currency gauge of the dollar’s value, climbed as much as 1 percent after jumping 1.7 percent on June 5, the most in more than four months. Gold, which typically moves in the opposite direction of the currency, slumped 2 percent in New York at the time, the most in about two months.

“The dollar is still going to be the main driver” for gold, Bernard Sin, the head of currency and metals trading at Swiss refiner MKS Finance SA, said by telephone from Geneva. “Any bad news will trigger more selling.”

Gold futures for August delivery dropped $10.10, or 1 percent, to $952.50 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price touched $943.80, the lowest for a most-active contract since May 26.

In London, bullion for immediate delivery fell $4.07, or 0.4 percent, to $951.18 an ounce at 8:04 p.m. local time. Spot prices, which surpassed $1,000 on Feb. 20, last week fell for the first week in five.

Silver futures for July delivery fell 43.3 cents, or 2.8 percent, to $14.955 an ounce in New York. The metal still has gained 32 percent this year, while gold still is up 7.7 percent.

“Gold prices could eventually fall toward $930 before rebounding back toward last week’s high at $990,” Tom Pawlicki, an analyst at MF Global in Chicago, said today in a report. “Silver prices could fall toward $14.60 support before rebounding back toward $16.”

Lowered Buy Recommendation

Pawlicki trimmed his recommended “buy” price to $930 an ounce from $950, while maintaining a target of $1,033. “Silver may appear attractive from the long side upon bullish action near the $14.60 level,” he said in the report.

Jean-Marie Eveillard, the senior investment adviser for the $7 billion First Eagle Global Fund, said it is 10 percent to 12 percent invested in gold and gold-mining securities.

“It’s insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary,” Eveillard said today in a Bloomberg Television interview, referring to the Federal Reserve.

In London’s afternoon “fixing,” the metal declined to $943.75 from $946.50 in the morning fixing. The fixing sets the price used by some mining companies to sell their output.

While stocks fell around the world, the dollar gained on speculation that the Fed will raise interest rates by the end of the year as the economy recovers. The dollar index climbed 1.8 percent last week as gold futures lost 1.8 percent in New York.

Lost Momentum

“Gold gains from here would be difficult unless risk aversion triggers buying in bullion once again,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a note. “With gold losing its momentum for a test of $1,000, investment in gold-backed exchange-traded funds also slowed.”

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, slipped to 1,132.15 tons as of June 5, the company’s Web site showed.

“We’re not sure a focus on U.S. recovery can continue, as the small signs of recovery have occurred globally, and Fed funds rates are likely to remain low for a long period of time,” MF Global’s Pawlicki said in the report.