June 5 (Bloomberg) -- Gold fell in New York and London, posting the first weekly decline in a month, as U.S. employment figures bolstered expectations that the worst of the recession is over, reducing demand for bullion as a store of value.

Payrolls fell by 345,000 in May, the least in eight months, the Labor Department said today. Still, the jobless rate rose to 9.4 percent, the highest since 1983. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, jumped as much as 1.8 percent. The measure typically moves inversely to gold. Equity markets climbed in Europe and Asia.

“With an economic recovery on the way, the need to hold gold is going to be reduced,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. “Investors are now taking more risks, investing in stocks instead of gold.”

Gold futures for August delivery dropped $19.70, or 2 percent, to $962.60 an ounce on the New York Mercantile Exchange’s Comex division. The metal fell 1.8 percent this week. Bullion for immediate delivery in London slid $18.43, or 1.9 percent, to $961.82 an ounce.

Silver for July delivery in New York fell 50.7 cents, or 3.2 percent, to $15.388 an ounce in New York. The metal dropped 1.4 percent this week, following four weeks of gains. Silver has surged 36 percent this year while gold advanced 8.9 percent.

Gold rose to $977.75 in the morning “fixing” in London, used by some mining companies to sell production, from $970.75 at yesterday’s afternoon fixing.

“We still think that gold prices are headed up toward $1,000 over the next one to two weeks, with support coming from inflows of investment and weakness in the dollar,” Tom Pawlicki, an analyst at MF Global in Chicago, said today in a report.

Dollar-Driven

The dollar index, which fell to its lowest this year on June 2, has dropped 4 percent in the past month as gold futures gained 6.4 percent.

“The dollar is the key driver at the moment,” David Barclay, a metals analyst at Standard Chartered Plc in London, said by phone today. “We’re not close to extreme inflation yet,” though “the dollar will be the main driver for gold for the rest of the year.”

Dollar vs Euro

The dollar advanced the most against the euro since late March and rose to a three-week high versus the yen.

“Gold is down on the back of a stronger dollar,” Anne- Laure Tremblay, an analyst at BNP Paribas, said in a note.

Twelve of 22 traders, investors and analysts surveyed by Bloomberg News said the metal will gain next week. Eight forecast lower prices and two were neutral.

“Gold and precious metals as a class will do extremely well over the next couple of years,” Sean Darby, the chief Asia and emerging markets strategist at Nomura International Ltd., said today. “Debt forgiveness and debt restructuring will come secondary to the actual money printing by central banks.”

“I would really be cautious about gold from here,” said Justin Smirk, a senior economist at Westpac Banking Corp. Gold may reach $1,000 an ounce “only if we get a big surge in overall commodities prices,” he said.

Darby and Smirk were both interviewed on Bloomberg Television.

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: June 5, 2009 14:54 EDT