March 3 (Bloomberg) -- Gold tumbled the most in seven weeks, extending the longest slump since October, as a rebound in equities eroded the investment appeal of the metal. Silver dropped to the lowest in almost a month.

The Standard & Poor’s 500 Index climbed as much as 1.5 percent today. Equities in the gauge were valued at the cheapest price relative to earnings since 1986 after tumbling yesterday. Gold was down for the seventh straight session, dropping 8.8 percent since closing above $1,000 an ounce on Feb. 20 for the first time in 11 months.

“Another sector rotation could take place with speculative funds abandoning safe-haven assets to pile into oversold equity markets,” said Jon Nadler, a senior analyst at Kitco Inc. in Montreal.

Gold futures for April delivery fell $26.40, or 2.8 percent, to $913.60 an ounce on the Comex division of the New York Mercantile Exchange, the biggest drop since Jan. 12. Earlier, the metal touched $905.70, the lowest for a most-active contract since Feb. 10. Futures still have climbed 3.3 percent this year.

Silver futures for May delivery tumbled 35.5 cents, or 2.7 percent, to $12.715 an ounce. Earlier, the price touched $12.43, the lowest since Feb. 5.

The Dow Jones Industrial Average gained as much as 1.3 percent after dropping below 7,000 for the first time since 1997 yesterday.

‘Unfriendly’

“For the long-term investor, the stock market crash of 2008 is a wonderful opportunity to pick up stocks at values not seen in a decade,” said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. “While gold may not depreciate terribly over the long term, the short term could be very unfriendly to investors.”

Gold gained 5.5 percent last year and the S&P plunged 38 percent.

Silver’s rally may stall should gold continue to slide, analysts said.

“Silver is drawing its strength from gold,” said Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey. “If gold doesn’t move up anymore, then silver is in trouble.”

Last year, silver fell 24 percent.

“Silver’s performance over the past couple of months shows that it is again fulfilling its typical role as a high beta precious metal, gently outperforming gold when both are strong, while underperforming less gently when both metals correct,” said John Reade, a UBS AG metals strategist in London.

Silver will trade at $15.75 within a month and $17 within three months, Reade said on Feb. 23.

Haven Demand

Gold may rebound on demand for a haven amid wide swings in equities, analysts said.

This year, gold and the dollar have occasionally moved in tandem when investors seek a store of value. Should the dollar top 90 against a weighted basket of six major currencies, gold will rally, said Ralph Preston, futures analyst at Heritage West Futures Inc. in San Diego.

“I’m going to look for gold to firm on dollar strength,” Preston said. “Gold will be competing with bonds and the buck for safe-haven status.”

The dollar reached 89.327 today against the basket of the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona. The greenback extended a rally to the highest level since April 2006.

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

Last Updated: March 3, 2009 14:35 EST