May 16 (Bloomberg) -- Gold in New York dropped almost 2 percent to the lowest in seven weeks as a gain in the value of the dollar against major currencies reduced the appeal of precious metals as alternative investments. Silver closed below $13 an ounce for the first time in two months.

Gold generally moves in the opposite direction of the dollar, which today gained the most since March 5 against a basket of six currencies. Gold reached an 11-month high on April 20 as the euro was headed toward a record against the dollar. Gold still has climbed 3.7 percent this year, while the euro gained 2.4 percent against the dollar.

``The bullish momentum of the market has fizzled out,'' said Tom Hartmann, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``A lot of the foreign currencies are taking a hit today because of the dollar strength.''

Gold futures for June delivery fell $13, or 1.9 percent, to $661.50 an ounce on the Comex division of the New York Mercantile Exchange, the lowest close since March 23.

Reports showed industrial productions rose more than economists forecast and housing starts unexpectedly increased, boosting the dollar.

Gold has moved in tandem with the euro 74 percent of the time in the past year, Bloomberg data showed. Five of the past six bear markets in the U.S. dollar have led to a higher gold price. The euro reached a record $1.3681 on April 27.

`Locked With Euro'

``We're locked in with the euro,'' said Frank McGhee, head metals trader at Integrated Brokerage LLC in Chicago.

The decline below $665 an ounce triggered more selling, traders said.

``This is a technical sell-off,'' Hartmann of Altavest said. ``We might get a bounce from $650, but the long-term support is back down at $620.''

Gold opened lower after failing to climb above $675 yesterday, said Greg Milkovich, senior market strategist at Lind-Waldock & Co. in Chicago.

``We've got resistance around $675,'' Milkovich said. ``We really need to see the dollar break to get above the $675 level.''

Silver for July delivery fell 38.5 cents, or 2.9 percent, to $12.93 an ounce, the lowest since March 14. The metal is little changed this year, trailing gold's gain.

A 5 percent drop in the price of copper this week also hurt demand for silver, which has wider industrial applications than gold.

``I'm looking for silver to take off with more positive macroeconomic news,'' Milkovich of Lind-Waldock said.

Last year, silver jumped 46 percent, while gold climbed 23 percent.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: May 16, 2007 14:08 EDT