July 8 (Bloomberg) -- Gold fell to a two-month low as the dollar climbed, curbing demand for bullion as an alternative investment. Silver prices also dropped.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, advanced as much as 0.3 percent after the International Monetary Fund raised its 2010 forecast for global economic growth. Gold typically falls when the dollar gains. Oil prices slid in New York for a sixth session, the longest slide this year.

“The dollar’s recent stability, coupled with an impressive crude-oil decline in the past several days, has gold bulls on the defensive,” said Ralph Preston, a Heritage West Futures Inc. commodity analyst in San Diego. “I have a very specific trade recommendation to short the gold market on today’s break of $915 support.”

Gold futures for August delivery fell $19.80, or 2.1 percent, to $909.30 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the metal touched $904.80, the lowest for a most-active contract since May 6.

“I am recommending aggressive bear traders short gold at $912 with an $8 stop-loss at $920,” Preston said, describing a position that will produce a gain if gold falls. The trade has “a price objective of $870, risk $8, for a potential profit of $42.”

Bullion for immediate delivery in London fell $15.43, or 1.7 percent, to $909.25 an ounce at 8:11 p.m. local time. Spot prices are headed for the fifth weekly decline in the past six.

‘Reacting’ to Dollar

“Gold is basically reacting to the stronger dollar,” Bernard Sin, the head of currency and metals trading at Swiss refiner MKS Finance SA, said by telephone from Geneva.

The dollar index has climbed 0.8 percent this month after rising 1 percent in June.

“The precious metals are succumbing to the downward pressure as many investors look for better places to park their money,” Miguel Perez-Santalla, a Heraeus Precious Metals Management sales vice president in New York, said in a note.

A projected near-term gain in the dollar likely will push gold lower, Suki Cooper, a Barclays Capital analyst in London, said today in a report.

The metal slid to $918 in the London afternoon “fixing,” the price used by some mining companies to sell their output, from $920.75 in the morning fixing.

Silver Declines

Silver futures September delivery fell 36.8 cents, or 2.8 percent to $12.852 an ounce in New York. Earlier, the metal slid to $12.74, the lowest for a most-active contract since May 4. Silver has gained 14 percent this year, while gold has advanced 2.8 percent.

The economic rebound next year will be stronger than forecast in April as the global financial system stabilizes, the International Monetary Fund said today in Washington. The lender forecast expansion of 2.5 percent next year, while saying this year’s contraction will deepen to 1.4 percent.

Policy makers should start crafting plans to wind down extraordinary fiscal and monetary steps, while maintaining measures aimed at stimulating demand in countries including the U.S., the IMF said. Government spending programs to counter the recession have raised inflation concerns, prompting some investors to buy precious metals to preserve value.

To contact the reporters on this story: Halia Pavliva in New York at hpavliva@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net.

Last Updated: July 8, 2009 15:14 EDT