Gold fell as the US dollar strengthened, eroding the appeal of precious metals as alternative assets. Silver plunged to the lowest in a year.

The dollar gained against the euro even as reports showed the US unemployment rate rose to a five-year high last month and foreclosures in the second quarter accelerated to the fastest pace in three decades. Gold has fallen 22% from a March 17 record of $US1033.90 an ounce.

"It's hard to argue with the dollar's trend,'' said Tom Hartmann, a commodity analyst at Altavista Worldwide Trading in Mission Viejo, California.

"The US is ahead of the curve in terms of getting ahead of the economic downturn. Precious metals and all commodities are coming back to earth.''

Gold futures for December delivery fell 40 US cents to $US802.80 an ounce on the Comex division of the New York Mercantile Exchange. The metal slipped 3.9% this week.

 The euro traded as low as $US1.4196 today, down from a record $US1.6038 reached on July 15. Gold may fall to $US750 by November, should the euro sink below $US1.41, analysts at Deutsche Bank AG said in a report.

"From a positioning perspective, net speculative longs in gold have declined to their lowest levels since the end of last year,'' the Deutsche Bank analysts said.

"We expect a further reduction in net length in an environment where the US dollar is continuing to strengthen.''

The US Dollar Index, a weighted basket of six major currencies, reached the highest in almost a year yesterday before paring gains. The index rose as much as 0.6% overnight.

Gold as a haven

Most commodities are priced in US dollars and rise when the currency weakens. Still, gold may fare better than other commodities even if the dollar extends its gains because of the metal's appeal as a haven from financial turmoil, some analysts said.

The Standard & Poor's 500 Index of equities declined 3.2% this week, the third consecutive weekly loss. Global equities have fallen 5.7% this week, the biggest fall since July 2002, Bloomberg data show, as the US and European economies showed further weakness.

The US jobless rate in August jumped to 6.1%, matching the level of September 2003, from 5.7% in the previous month.

New mortgage foreclosures increased to 1.2% in the second quarter, and the inventory of U.S. homes in foreclosure topped 2.7%, the Mortgage Bankers Association said. The European Central Bank had earlier forecast economic growth to slow in the region.

Stalling dollar

"The dollar is going to start stalling around here,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

"Equities are losing value. With no better choices to put money into, we're going to see renewed interest in some commodities, and gold is going to benefit.''

Gold may climb further, breaking its link to currencies, some analysts said. In 2005, gold gained 18% even as the euro fell 13% against the US dollar.

"Gold will rally as an alternative to the dollar when people don't want the euro,'' said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland.

Silver, which has wider industrial uses than gold, fell after copper dropped as much as 5.9% on speculation a slowing global economy will reduce demand for raw materials.

 The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials dropped as much as 2.4% overnight and is down 21% from a record on July 3.

"For the moment, it's the industrial side rather than the monetary side that's pulling silver down,'' said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.

"You've got perceived economic weakness. Copper let us down and silver followed.''

Silver futures for December delivery fell 61.5 US cents, or 4.8%, to $US12.325 an ounce on the Comex. The price earlier touched $US12.12, the lowest for a most-active contract since August 31 last year.

Bloomberg