By Nicholas Larkin Sept. 29 (Bloomberg) -- Gold declined in New York and London as a strengthening dollar cut demand for the metal as an alternative investment. The dollar climbed to a two-week high against the euro as evidence economies have yet to shake off the worst effects of the global recession spurred demand for the safety of the U.S. currency. Gold tends to fall when the dollar strengthens. “The correlation between gold and the dollar has been very high in the last couple of weeks,” Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, said today by phone. “Gold will probably follow the euro-dollar move and go lower.” Gold futures for December delivery fell $4.70, or 0.5 percent, to $989.40 an ounce on the New York Mercantile Exchange’s Comex division by 8:28 a.m. local time. Immediate- delivery bullion lost 0.3 percent to $988.45 in London. The dollar climbed as much as 0.6 percent against the euro as Russia’s central bank cut its main interest rate. The U.S. currency has lost 4 percent against the euro this year as bullion futures have advanced 12 percent. Gold may be supported as investors seek a haven from geopolitical tension in the Middle East, according to HSBC Securities analyst James Steel. Iran yesterday test-fired its Shahab-3 missile amid a threat that international talks this week on its nuclear program will lead to further sanctions. The missile can reach Israel. Unchanged ‘Fixing’ The metal’s morning “fixing” in London, used by some mining companies to sell production, was unchanged from yesterday’s afternoon fixing at $991.75 an ounce. Gold has dropped 3.8 percent since climbing to an 18-month high of $1,025.80 on Sept. 17. Futures reached a record $1,033.90 in March 2008. The advance above $1,000 was “driven by a combination of investment and speculative purchases, extended by technically driven trades, and the lack of any robust demand” means investors should “be aware of a strong likelihood of a correction early in the fourth quarter” Societe Generale SA analysts led by Frederic Lasserre said in a report today. “An attack on $1,100 is perfectly foreseeable in the first half of next year,” they said. Bullion is heading for a ninth annual gain. Hedge-fund managers and other large speculators increased their bets on rising New York futures to a record in the week ended Sept. 22, the U.S. Commodity Futures Trading Commission said last week. Net-long positions gained by 1,102 contracts to 236,749 contracts. Hesitant to Buy “A certain hesitancy has emerged among fast money to buy gold at the moment due to fears of excess long positioning in Comex gold futures and concerns about the sustainability of both dollar weakness and the broader trend of risk asset growth,” John Reade, UBS AG’s head metals strategist in London, wrote in a note today. “We continue to expect a deeper correction in gold and silver in coming weeks.” Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, were unchanged for a second day at 1,094.11 metric tons yesterday, data on the company’s Web site showed. Silver for December delivery in New York dropped 0.9 percent to $16.05 an ounce. Platinum for January delivery fell 1.4 percent to $1,273.40 an ounce, the lowest in three weeks, while palladium for December delivery was 1.6 percent lower at $289.20 an ounce. Impala Accident Impala Platinum Holdings Ltd., the producer of more than a quarter of the world’s supply of the metal, said an accident and a strike at its Impala Lease Area mine will cut planned output by 100,000 ounces. The mine previously had a production target of 950,000 ounces in the financial year through June 2010. The lost output equals about 1.7 percent of BNP Paribas SA’s 5.8 million-ounce estimate of this year’s global production. Platinum held in ETF Securities Ltd.’s exchange-traded products added 0.7 percent to 363,505 ounces yesterday, its Web site showed. The company’s gold, silver and palladium holdings were unchanged.

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