By Halia Pavliva Dec. 3 (Bloomberg) -- Gold futures fell in New York as the dollar strengthened and deflation concerns accelerated, reducing the appeal of the precious metal as an alternative investment. Silver also declined. The euro fell against the dollar as economists forecast the European Central Bank tomorrow will cut its main refinancing rate. Gold and other precious metals often move in the opposite direction of the U.S. currency. Some investors buy the metal to preserve value when consumer prices rise. Excluding food and fuel costs, consumer prices fell in October for the first time since 1982, according to government figures. “After having a run to the $830 level a few weeks ago, gold has been under pressure on account of the dollar being steadier of late,” Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said in an e-mailed note. “More importantly, with deflation -- as opposed to inflation -- now being the key macro development to watch, gold’s attraction has been waning compared to earlier in the year.” Gold futures for February delivery fell $10.70, or 1.4 percent, to $772.60 an ounce at 9:42 a.m. on the Comex division of the New York Mercantile Exchange. The metal tumbled 5.2 percent on Dec. 1, the most since March, and is down 7.8 percent this year. Silver futures for March delivery fell 11 cents, or 1.1 percent, to $9.505 an ounce on the Comex. The metal has dropped 36 percent this year. Gold is headed for an annual decline for the first time in eight years, while the U.S. Dollar Index, which values the currency against a basket of six major counterparts, is poised for its first advance in three years. The index rose 9.6 percent in the third quarter, while gold fell 5.1 percent. Consumer Prices Fall The Consumer Price Index declined 1 percent in October, the most since records began in 1947, according to the Labor Department. Fed policymakers predicted the U.S. economy will shrink until the middle of next year, with some officials concerned about the risks of deflation, according to minutes of their Oct. 28-29 meeting. Fed policy makers, confronting what may be the worst recession since World War II, will reduce the target interest rate at a Dec. 16 meeting by a quarter-point to 0.75 percent, according to economists surveyed by Bloomberg News. The Fed has reduced its benchmark rate by 4.25 percentage points since September 2007, to 1 percent. Rate Cuts Expected Other central banks are expected to make cuts. In New Zealand, rates will be cut this week by 1.5 percentage points to 5 percent, according to the median forecast of analysts surveyed by Bloomberg. In the U.K., a 1-point cut to 2 percent is expected, while the rate for the euro region may be trimmed a half-percentage point to 2.75 percent. “It looks like the ECB will be cutting rates more than originally expected and if they do, the dollar will strengthen and we may see weaker metals prices,” Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said in a report. A global recession may damp demand for all raw materials, and some investors will be forced to sell precious metals to raise cash and cover losses in other markets, some analysts said. The Reuters-Jefferies CRB Index of 19 raw materials fell as much as 1 percent today and has dropped 37 percent this year. To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

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