May 2 (Bloomberg) -- Gold prices in New York fell the most in five weeks amid speculation the U.S. Federal Reserve raise its benchmark interest rate tomorrow, eroding the appeal of precious metals as an alternative to U.S. assets.

All 22 primary dealers, firms that trade U.S. government securities with the Fed's New York branch, forecast the central bank will raise its target rate by a quarter point for the eighth time since June to 3 percent. Higher rates make holding gold less attractive when rates climb because the metal, unlike bonds, doesn't pay interest.

``Gold is never strong going into a Fed meeting,'' said Dennis Eich, trader at Chicago-based brokerage Peregrine Financial Group Inc. ``Even if they raise rates a quarter point, that'll put pressure on the gold market.''

Gold futures for June delivery fell $5.60, or 1.3 percent, to $430.50 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage decline since March 23. A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

Lower energy costs have helped pull down gold prices, said Mike Armbruster, co-founder of Altavest Worldwide Trading Inc. in Mission Viejo, California.

Gold reached a 16-year high of $458.70 an ounce on Dec. 2, partly on speculation rising energy costs would boost inflation. Crude-oil prices fell to a two-month low today as traders bet slower economic growth in the U.S., Europe and Japan and an increase in inventories will curb demand.

Oil Stockpiles Gain

Oil prices on the Nymex have dropped 15 percent to $49.75 a barrel from a record $58.28 on April 4. U.S. crude inventories soared to a three-year high last week, easing concerns that fuel demand would outstrip supply over the summer.

``Crude has a gravitational pull,'' Armbruster said. ``The momentum is still on the downside for gold.''

Gold also followed the euro lower after a report showed manufacturing in the dozen euro nations contracted for the first time in almost two years in April.

Gold has moved almost in lockstep with the euro's performance against the dollar in the past three months, at a correlation coefficient of 0.81. The maximum reading is 1. The coefficient measures to what degree two variables move in unison.

Berkshire Hathaway Inc. Chairman Warren Buffett, who stayed with a $21 billion bet against the U.S. dollar even after it cost the insurance and investment company about $310 million in the first quarter, said he wouldn't invest in gold.

``We're not enthused about gold,'' Buffett said at the company's annual meeting over the weekend in Omaha, Nebraska. ``People historically have thought that was the first refuge from a declining currency.'' Berkshire wouldn't get rid of useful assets for ``a hunk of metal which had no real utility other than to people that are fleeing the dollar,'' he said.

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

Last Updated: May 2, 2005 14:05 EDT