The dollar climbed as much as 0.6 percent against the euro as an auction of Italian bonds fell short of the government’s target. Gold, down 12 percent in December, is headed for the biggest monthly drop since October 2008, compared to the greenback’s almost 3 percent gain against a six-currency basket.

“The developments in Italy have perked up the dollar, and that is pushing gold down,” Sterling Smith, an analyst at Country Hedging Inc. in St. Paul, Minnesota, said in a telephone interview. “I expect gold to remain in negative territory this week.”

Gold futures for February delivery declined 1.5 percent to close at $1,540.90 an ounce at 1:38 p.m. on the Comex in New York. The metal fell for a sixth straight session, the longest slide since March 4, 2009. Today’s settlement leaves prices down 19 percent from a record close of $1,891.90 reached on Aug. 22, about 1 percentage point shy of a bear market. Earlier, prices reached $1,523.90, the lowest since July 7.

Still, gold is up 8.4 percent this year, heading for an 11th consecutive annual advance. Futures climbed as investors and central banks bought the metal as a store of wealth.

“You have stagnating output and, on the demand side, jewelry consumption adapts to higher prices,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “The fundamental investment case for gold is still intact.”

The interest rate (.LIBGO6M) for lending gold in exchange for dollars jumped to 0.2085 percent, the highest since July 2010. One-month lease rates fell to the lowest on record in December as European banks sought ways to secure the U.S. currency amid the region’s debt crisis.

Silver futures for March delivery added 0.3 percent to $27.315 an ounce on the Comex. The metal has lost 12 percent this year.

Platinum futures for April delivery declined 1.8 percent to $1,366.80 an ounce on the New York Mercantile Exchange. Palladium futures for March delivery slumped 3.6 percent to $623.75 an ounce on Nymex, the biggest drop since Dec. 14.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

http://www.bloomberg.com/news/2011-12-29/gold-falls-to-lowest-level-in-five-months-in-london-as-dollar-extends-gain.html

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