Gold falls as dollar rises

Gold fell in London as the dollar rose against the euro, boosting the allure of the metal as an alternative to the US currency. Silver and palladium dropped.

Gold maintained a correlation of 0.7 with the euro-dollar last month, according to Bloomberg data, climbing to a record $1,032.70 an ounce as the dollar slumped. A correlation of 1 would mean gold and the euro moved in lockstep.

"The recovery in the dollar at this point is just corrective,'' said Robin Wilkin, London-based head of commodities and currency technical analysis at JPMorgan Chase & Co. "There is still the risk of a deeper correction into the $850-$825 over the next few days. The longer term bull trend in gold is ongoing.''

Gold for immediate delivery fell $7.72, or 0.9 per cent, to $896.63 an ounce by 11:56 am in London. Gold for June delivery was unchanged at $900.40 an ounce on the Comex division of the New York Mercantile Exchange.

The metal also rebounded after declining yesterday for the first time in a week as the dollar slipped following Federal Reserve Chairman Ben S. Bernanke's statement that the U.S. may fall into recession.

"Perceptions of how much more the dollar will weaken will be key for gold in the short term,'' said Simon Toyne, a mining analyst at Numis Securities Ltd.

"The dollar has already weakened a lot, US interest rates have been cut substantially, the key is how much lower can the dollar go.''

Silver for immediate delivery slid 19.5 cents, or 1.1 per cent, to $17.16 an ounce.

The metal, which reached a record of $20.81 on March 5, will probably recover to around $21 an ounce by the end of this year, said James Moore, an analyst at TheBullionDesk.com.

Palladium fell $2, or 0.5 per cent, to $439 an ounce and platinum rose $11, or 0.6 per cent, to $1,963 an ounce.