By Pham-Duy Nguyen Nov. 6 (Bloomberg) -- Gold fell as lower borrowing costs in Europe and the U.K. boosted the dollar, eroding the appeal of the metal as an alternative investment. Silver also declined. The dollar gained as much as 1.6 against a weighted basket of six major currencies after the Bank of England and the European Central Bank slashed benchmark interest rates to stimulate slumping economies. Last month, the metal dropped 18 percent, the most in 28 years, as the dollar climbed 11 percent against the euro. ``The dollar's strength is just squashing gold,'' said Ralph Preston, a futures analyst at Heritage West Futures Inc. in San Diego. ``Gold is behaving like every other asset under the sun. It's deflating.'' Gold futures for December delivery fell $10.20, or 1.4 percent, to $732.20 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price rose as high as $761.30. Silver futures for December delivery dropped 40 cents, or 3.8 percent, to $10.055 an ounce. The metal is down 33 percent this year, while gold dropped 13 percent. The ECB reduced its main refinancing rate by 50 basis points to 3.25 percent. The BOE slashed its key rate by 1.5 percentage points to 3 percent. Switzerland's central bank lowered its benchmark rate to 2 percent from 2.5 percent. Investors may flock to the dollar on bets the U.S. may recover from a recession faster than other nations, said Matt Zeman, a metals trader for LaSalle Futures Group in Chicago. The U.S. federal funds rate is at 1 percent, down from 5.25 percent in September 2007. ECB President Jean-Claude Trichet said today that more rate cuts are possible. Margin Pressure Gold also declined as tumbling equities forced investors to sell the metal to raise cash, said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter. ``As equity prices weaken, the propensity on the part of the margin clerks to reign in any strength and to push for liquidation is high,'' Gartman said. He currently has no positions in gold. The Dow Jones Industrial Average dropped as much as 5 percent today after plunging 5 percent yesterday. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has remained unchanged at 749.2 metric tons since Oct. 27. The fund reached a record 770.6 tons on Oct. 10. Still, gold may eventually rebound as global interest-rate cuts devalue currencies and stoke inflation, Zeman said. ``If everybody continues to drop rates and rates stay very low, inflation may come back with a vengeance,'' Zeman said. ``In that environment, gold would do very well.'' To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

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