Gold futures dive as dollar strengthens, crude oil retreats

Other commodities fell in a broad sell-off, with silver, copper, heating oil and agriculture futures all trading lower.

The dollar strengthened against several major currencies as investors bet that the Federal Reserve may be poised to wind up its interest-rate cutting campaign and turn its attention to curbing inflation. The Fed, which begins a two-day policy meeting Tuesday afternoon, is expected to cut its benchmark rate by a quarter point on Wednesday but then hold steady for the rest of the year.

Lower rates can boost the economy but tend to undercut the dollar, encouraging investors to buy hard assets like gold, which is known for holdings its value.

"Many people expect tomorrow's rate cut will be the last for some time, so that would alleviate some downward pressure on the dollar and take away from the upward pressure on gold," said Carlos Sanchez, analyst with CPM Group in New York.

Gold for June delivery dropped $18.70 to settle at $876.80 an ounce on the New York Mercantile Exchange. The contract earlier fell as low as $873.80, its lowest level since Jan. 22. Gold is up 3 percent so far this year but has retreated far from its record of $1,038.60 set March 17.

Analysts blame the slide on profit-taking after the run-up, weak demand for jewelry and a sense among investors that the worst of the credit crisis may have passed, which would diminish gold's allure as a safe-haven metal.

"Given the upward surge in gold this year, it's probably logical that prices would come off," Sanchez said, adding that prices could recover in the coming months.

Other precious metals also fell Tuesday. Silver for May delivery dropped 47.3 cents to settle at $16.545 an ounce on the Nymex, while May copper fell 3.6 cents to $3.8995 a pound.

In energy markets, crude oil fell more than $3 a barrel on the stronger dollar and data showing falling demand even as supplies are rising. A monthly Energy Department report said demand for finished petroleum products dropped 8.5 percent in February from January, and demand for gasoline fell by 6.2 percent.