NEW YORK (MarketWatch) - Gold futures fell Tuesday as the metal's appeal as a hedge against inflation declined after the U.S. reported a record drop in producer prices and inflation pressures in the U.K. eased much more than expected.
U.S. producer prices index fell a record 2.8% in October from a month ago, the most since 1947, the Labor Department reported Tuesday.
Falling prices weren't just seen in the U.S. -- the U.K.'s Office for National Statistics said consumer price index fell 0.2% in the same month. Market expectations had been an increase of 0.1%.
The data indicated that deflation is displacing inflation as a major concern for investors and policy makers, analysts said. "It now seems that there is a strong likelihood of deflation," said Ben Read, managing economist at the Center for Economic and Business Research.
Gold for December delivery fell $6.90, or 0.9%, to $735.10 an ounce on the Comex division of the New York Mercantile Exchange. It closed slightly lower in the previous session.
Some analysts, however, said falling inflation worries in the U.S. will encourage the Federal Reserve to cut interest rates further, a move that could weaken the U.S. dollar.
"We believe that the fall in the PPI adds to the likelihood of further interest rate drops" and "add to the influences that will weaken the dollar soon," said Julian Phillips, editor of Gold Forecaster.
A weaker dollar tends to push up gold prices as it increases the metal's appeal as an alternative investment.
The dollar has been strengthening against the British pound and the euro since July, but recent trading has showed some weakness in the greenback. On Tuesday, the dollar index , which tracks the value of the greenback against its major rivals, fell 0.2%.
Gold in the SPDR Gold Trust, the largest gold exchange-traded fund, remained at 748.94 tons on Monday, unchanged for a fourth day, according to the latest data from the fund. Gold held by the fund hit a record high of 770.64 tons on Oct. 10.
In other trading, December copper fell 2% to $1.624 a pound, while January platinum rose 0.5% to $825 an ounce. December silver sank 1.6% to $9.18 an ounce, and December palladium fell 0.3% to $217 an ounce.
