June 5 (Bloomberg) -- Gold declined in Asian trading as a gain in the dollar weakened demand for the metal as an alternative investment.

Bullion slipped after the Dollar Index, a gauge of the U.S. currency against six major trading partners, increased as much as 0.2 percent, reversing yesterday’s decline. Silver fell, while platinum and palladium were poised for third straight weekly advances.

“Gold is driven by dollar sentiment at the moment,” Charles Dowsett, director of commodity derivatives at ABN Amro Holding NV in Sydney, said by phone today. “The price is coming off today as the dollar is a little bit stronger.”

Gold for immediate delivery declined as much as 0.4 percent to $976.62 an ounce and was at $977.73 at 1:55 p.m. in Singapore. Silver for immediate delivery fell 0.2 percent to $15.8650 an ounce, paring yesterday’s 3.5 percent surge.

Silver has outpaced gold this year. An ounce of gold now buys about 61.8 ounces of silver, according to data compiled by Bloomberg. That’s down from a high of 84.4 ounces on Oct. 10, which was the most since March 1995.

The Dollar Index was little changed after falling yesterday on speculation nations are considering alternatives to the world’s main reserve currency. Bullion typically moves in the opposite direction to the dollar.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,132.5 metric tons as of yesterday, according to the company’s Web site.

Gold for August delivery, the most-active contract on the Comex division of the New York Mercantile Exchange, declined 0.2 percent to $979.90, after gaining 1.7 percent yesterday.

Inflation Fears

“Some medium- to longer-term investment has come in on longer-term inflation fears,” ABN Amro’s Dowsett said. “As governments print more money to spend on stimulus packages, the view is eventually that it will push inflation.”

Among other precious metals for immediate delivery, platinum fell 1.1 percent to $1,281 an ounce after touching $1,298.25 yesterday, the highest since Sept. 9. Before today, platinum had gained 8.6 percent this week.

Palladium dropped 0.6 percent to $253.50 an ounce by 2 p.m. Singapore time. The metal jumped 4.7 percent yesterday and reached $255.75, the highest since Sept. 23. Before today, palladium had risen 7.9 percent this week.

Platinum and gold “have been very good hedges on the U.S. dollar and in particular platinum was very, very oversold at the end of last year on the back of U.S. auto woes,” Sean Darby, chief Asia and emerging markets strategist for Nomura International Hong Kong Ltd., said today in an interview.

Holdings in ETF Securities Ltd.’s exchange-traded fund backed by platinum have jumped 74 percent this year, while palladium assets surged 81 percent. Platinum and palladium are used mostly in jewelry and in pollution-control devices in cars.

To contact the reporters on this story: Jason Scott in Perth at Jscott14@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net

Last Updated: June 5, 2009 02:43 EDT