July 7 (Bloomberg) -- Gold climbed in New York on speculation that the dollar may decline, spurring demand for the precious metal as an alternative investment and inflation hedge. Silver fell.

An economic adviser to President Barack Obama said today that the government should consider adding to its $12.8 trillion in commitments to ease credit and counter the sharpest U.S. contraction in more than 50 years. Gold typically gains when the U.S. currency declines as investors seek to preserve value.

“Our economists see the dollar weakening in 2010 and 2011 with some risks to a larger selloff from a crisis in confidence in the U.S.,” John Reade, UBS AG’s head metals strategist in London, said today in a note.

Gold futures for August delivery rose $4.80, or 0.5 percent, to $929.10 an ounce on the New York Mercantile Exchange’s Comex division.

A second U.S. stimulus package should focus on projects such as highways, airports and railroads, because the $787 billion plan approved in February is “a bit too small,” said Laura D’Andrea Tyson, an adviser to Obama. “The economy is worse than we forecast.”

In a speech, which she stressed represented her own views and not those of the administration, Tyson said that more government spending raises concerns that “the U.S. will have to inflate away its debt. I do not think that is a valid concern.”

Fed’s Role

“The Federal Reserve is not going to let the U.S. government inflate away its debt,” she said, speaking at an investment conference in Singapore.

Bullion for immediate delivery in London slipped 18 cents to $924.77 an ounce at 9:04 p.m. local time. The spot price has fallen in four of the past five weeks.

“While weakness in the economy should pressure risk markets like stocks, energies, and industrial metals, precious metals don’t always find themselves in the same boat,” Tom Pawlicki, an MF Global Inc. analyst in Chicago, said in a note. ‘We therefore look for stabilization of gold prices near the $915 support level.” He said the price may reach $949 in three months.

Gold declined to $924 in the afternoon London “fixing,” the price used by some mining companies to sell their output, from $925.75 in the morning fixing.

The dollar rose 0.3 percent against a basket of six major currencies after falling as much as 0.5 percent earlier.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell 0.36 metric ton to 1,120.19 tons as of yesterday, the company’s Web site showed.

Silver for September delivery declined 1.8 cents, or 0.1 percent, to $13.22 an ounce in New York, after falling as much as 1.1 percent earlier.

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

Last Updated: July 7, 2009 16:08 EDT