Aug. 8 (Bloomberg) -- Gold fell to an eight-week low in London on speculation dollar gains will spur sales by investors who bought the metal as an alternative to earlier declines in the U.S. currency. Silver dropped to the lowest in six months.

Gold has slid 5.6 percent this week, the most since March 21, as the dollar rallied against the euro on signs of slowing European growth. The metal traded below its 40-, 100- and 200-day moving-averages for the first time in a year, a sign it may fall further, according to traders who follow technical charts.

``The situation in gold is not very good,'' said Mario Innecco, a futures broker at MF Global Ltd. in London. ``A lot of people are saying if we break $850, we're going to $600.''

Gold for immediate delivery declined $12.80, or 1.5 percent, to $860.25 an ounce by 11:35 a.m. in London, the lowest since June 13. The $850 level was a record for the metal for 28 years until January this year. Gold rose to as high as $1,032.70 on March 17.

Declining prices have spurred ``very strong'' jewelry demand in India, the world's largest consumer of the metal, along with Turkey and parts of the Far East, said Afshin Nabavi, a senior vice president at MKS Finance SA in Geneva. ``However, there seems to be liquidation continuing to come in and also helped by the stronger dollar and weaker oil.''

Crude oil for September delivery fell $2.22 to $117.80 a barrel on the New York Mercantile Exchange. Prices have dropped 5.8 percent this week.

Gold may fall to $850 an ounce ``where there is very good support,'' Nabavi said. The metal declined to $846.22 on May 2 and was 17 percent higher on July 15.

Silver Declines

Silver fell 40 cents, or 2.5 percent, to $15.80 an ounce after earlier dropping to $15.77 an ounce, the lowest since Jan. 23. Prices are down 9.4 percent this week, the biggest drop since March 21. Platinum fell $7.50 to $1,568 an ounce and palladium declined $3.25 to $345.25 an ounce

``It is hard to see gold not moving down to $800-$770 and silver towards $14,'' JPMorgan Chase & Co. analyst Robin Wilkin wrote in a report today.

The Bloomberg UBS CMCI Index of 26 commodities has jumped 15 percent this year. It has dropped 3.8 percent this week, led by declines in soybeans, corn, silver and natural gas.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

Last Updated: August 8, 2008 07:15 EDT