Gold Drops Most in Three Weeks as Dollar Rebounds; Silver Falls

July 28 (Bloomberg) -- Gold fell the most in almost three weeks as the dollar rebounded against the euro, eroding demand for the metal as an alternative investment. Silver also declined.

Gold and the dollar have moved inversely every month since April, resuming a pattern in five of the past seven years. The greenback rose as much as 0.7 percent against the euro, partly on revived demand for the safety of the world’s main reserve currency.

“It is rather painful to describe the moves in gold solely in terms of the euro-U.S. dollar, but that is all that seems to be driving the gold price at the moment,” John Reade, UBS AG’s head metals strategist in London, said in a report. “Jewelry, physical investment and ETF flows remain very quiet.”

Gold futures for August delivery dropped $14.60, or 1.5 percent, to $941.70 an ounce on the Comex division of the New York Mercantile Exchange, marking the biggest drop for a most- active contract since July 8.

The price for immediate delivery slid 1.6 percent to $938.17 at 2:33 p.m. New York time.

“Gold is just following the dollar,” said Afshin Nabavi, a senior vice president at MKS Finance SA in Geneva.

Silver futures for September delivery dropped 25 cents, or 1.8 percent, to $13.74 an ounce, the biggest decline since July 10.

Earlier, the U.S. Dollar Index, a gauge against six major currencies, touched the lowest this year.

‘Congestion’

“Not having gold at $1,050 at a time when the greenback is scraping the floor of 2009’s index levels is not too good,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a report. “We are having to lean with the projections that call for a possible $100 break in the gold price following this rubber-band congestion and the metal’s inability to sail smoothly higher.”

Gold climbed to an 11-month high in February as investors sought a haven against equity losses. The metal benefited as investors bought exchange-traded funds backed by bullion.

In July, gold held in 15 ETFs has tumbled 26 tons, heading for the largest monthly outflow since April 2008, according to Barclays Capital.