Gold Falls to Two-Week Low as Dollar Gain, Oil Drop Curb Demand

July 6 (Bloomberg) -- Gold fell to the lowest in almost two weeks as the dollar climbed and oil slid, reducing demand for the metal as an alternative investment and an inflation hedge. Silver also dropped.

The U.S. Dollar Index, a six-currency measure of the greenback’s value, climbed as much as 0.6 percent. Gold typically falls when the dollar rises. Crude-oil futures fell to a five-week low in New York, while equities dropped worldwide on concern that a recovery from the global recession may falter.

“Precious metals are down and essentially it is on the strength of the U.S. dollar and the overall drop in commodities,” Miguel Perez-Santalla, a Heraeus Precious Metals Management sales vice president in New York, said in a note.

Gold futures for August delivery sank $6.70, or 0.7 percent, to $924.30 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $920.30, the lowest for a most-active contract since June 23.

Bullion for immediate delivery fell $8.21, or 0.9 percent, to $924.04 an ounce in London at 8:19 p.m. local time.

A meeting of leaders of the Group of Eight industrialized nations in Italy later this week may help investors get a better sense of where the world economy stands, Jon Nadler, a Kitco Inc. senior analyst in Montreal, said today in a report. He said the meeting also may help clarify the dollar’s status as a global reserve currency.

Gold rose to $924.50 an ounce in the afternoon “fixing” in London, the price some mining companies use to sell their output, from $921.50 in the morning.

Oil fell on speculation that a slower economic recovery will curb demand. Crude futures dropped as much as 5 percent to a five-week low of $63.40 a barrel in New York.

Selling Side ‘Ideal’

“The slide in oil prices” may restrain gold, Pradeep Unni, a Richcomm Global Services analyst in Dubai, said today in a note. “Fresh buying could be limited and slow. It’s ideal to be on the selling side.”

The MSCI World Index of shares touched a five-week low. The index dropped in each of the past three weeks after reaching a seven-month high on June 11.

“If equities remain weak through U.S. trading, combined with further dollar strength, then gold could target the recent low at $913-$914 an ounce,” John Reade, UBS AG’s head metals strategist in London, said today in a note.

Silver futures for September delivery fell 17 cents, or 1.3 percent, to $13.238 an ounce in New York. The metal earlier touched $12.995, falling below $13 for the first time in two months.

“In our view, given silver’s weak fundamental footing, silver prices remain the most susceptible to further downside risk, should the dollar strengthen and gold prices remain soft,” Suki Cooper, a Barclays Capital analyst in London, said today in a report.