June 15 (Bloomberg) -- Gold fell to a three-week low as the rising dollar eroded demand for the metal as an alternative investment. Silver plunged the most in more than 12 weeks.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, gained after Russian Finance Minister Alexei Kudrin affirmed the U.S. currency’s role as a world reserve. Gold, which typically moves in the opposite direction as the dollar, has dropped 5.4 percent this month as the dollar index advanced 2.5 percent.

“Stronger dollar sentiment has put gold under further pressure,” James Moore, an analyst at TheBullionDesk.com in London, said today in a note. “The metal could extend lower as a result.”

Gold futures for August delivery sank $13.20, or 1.4 percent, to $927.50 an ounce on the New York Mercantile Exchange’s Comex division. The price touched $926.50 earlier, the lowest for a most-active contract since May 20.

Bullion for immediate delivery slid $11.99, or 1.3 percent, to $927.31 an ounce at 6:50 p.m. local time in London after earlier reaching $925.80, also the lowest since May 20.

Silver futures for July delivery plunged 84.5 cents, or 5.7 percent, to $14.03 an ounce in New York, the steepest drop for a most-active contract since March 18. Earlier, the price touched $14.03, the lowest since May 19. Silver for immediate delivery fell 75.5 cents, or 5.1 percent, to $14.085 an ounce at 6:51 p.m. in London.

“The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts said today in a note, referring to Brazil, Russia, India and China by the popular acronym. “Investor sentiment remains positive toward gold.” Leaders of the four countries are set to meet in Russia.

‘Bearish’ Case

The strength of the dollar helps make David Wilson, a Societe Generale analyst in London, “bearish” on gold. Wilson cited the currency’s rally today in a report. There is still “downside risk” in silver contracts as well, Wilson said.

Gold was little changed at $932.25 in the afternoon “fixing” in London, used by some mining companies to sell their production. The morning fixing was $932.

“We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand,” John Reade, UBS AG’s head metals strategist in London, said today in a report.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, remains unchanged at 1,132.15 metric tons, its level as of June 5, the company’s Web site shows.

Gold will average $952 an ounce this year, 2.7 percent more than previously estimated, Macquarie Group Ltd. said in a report dated today.

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 15, 2009 13:53 EDT