Gold headed for its biggest weekly decline in 23 years on Friday and silver plunged as the dollar rallied, damping demand for precious metals as an alternative investment, Bloomberg reports. Palladium fell as much as 9.9 percent.

Gold, after reaching a 26-year high on May 12, has since dropped 8 percent in London, the first decline since the week ended March 10. Precious metals slumped today as the dollar rose against the euro and yen on speculation the Federal Reserve may raise interest rates to rein in inflation, Bloomberg reports.

Gold for immediate delivery dropped $25.55, or 3.7 percent, to $656.75 an ounce at 4:47 p.m. in London. A close at that price would mark the biggest weekly drop since the last week of March 1983, when gold lost 11 percent, Bloomberg reports. Gold futures for delivery in June fell $23.70, or 3.5 percent, to $657.20 at 11:48 a.m. on the Comex division of the New York Mercantile Exchange.

The dollar traded at $1.2727 versus the euro and 111.83 against the yen.

Gold futures are up 27 percent this year and reached a 26- year high of $732 last week.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Silver for immediate delivery fell 34 cents, or 2.7 percent, to $12.33 an ounce in London. A close at that price would be the lowest since April 24.

Palladium for immediate delivery fell $31, or 8.4 percent, to $338.50 an ounce in London, Bloomberg reports. Palladium is up 33 percent this year, just ahead of the 32 percent rise for platinum.

Palladium production will exceed demand this year for a sixth year on expanding mine output in South Africa, Johnson Matthey, the world’s largest distributor of platinum group metals, said on March 15. Prices are being driven higher by buying from hedge funds rather than supply and demand.

JCK