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Gold took another tumble Tuesday as new economic data lessened worries about inflation.

Labor Department statistics showed producer prices rose 0.1% in August, compared to a forecast of 0.3%. And the core rate, which excludes volatile food and energy, dropped 0.4% vs. an expected 0.2% increase.

Separately, housing starts figures from the Commerce Department indicated residential construction fell in August to an annual rate of 1.665 million compared with 1.772 million the previous month. Economists had been predicting starts of 1.746 million.

The data provided evidence that the

Federal Reserve's

rate hike program may be having the desired effect of cooling the economy, and that helped ease fears that a runaway economy would fuel rising prices.

Gold is viewed by investors as a hedge against inflation, hence Tuesday's data led to softer prices for the yellow metal.

Prices for December delivery of bullion were recently trading down $6.30 at $586.50 an ounce on the Comex division of the New York Mercantile Exchange.

The currency market response, however, was muted, with the dollar buying 117.225 yen, down from 117.88 yen late Monday. The euro which was trading at $1.2704, roughly unchanged from late Monday.

"To really get gold moving we need to see the possibility of a rate cut, which would weaken the dollar," says Brian Hicks, portfolio manager for

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U.S. Global Investors Global Resources Fund.

Monday saw anti-government riots in Hungary, but the news failed to spark any flight to safety bid in gold. The disturbances, which resulted in police using a water-cannon and tear gas, broke out on news that the government had been lying about the state of the country's economy,


reports. Prime minister Ferenc Gyurcsany vowed to push ahead with tough economic reforms and refused to resign.

Similarly, reports of a possible coup in Thailand, following the declaration of a state of emergency there, did seemingly little to boost interest in gold.

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Social unrest in the Middle East would likely have seen a flight to gold or the U.S. dollar, notes Hicks, whose fund has reduced its cash position over the past two weeks to take advantage of lower stock prices in the mining sector. "We are gravitating towards quality large-cap and mid-cap stocks that have been depressed recently," he says, declining to specify.

Among large-cap producers,


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were losing in line with the metal price, recently down 1.5% and 0.77%, respectively.

Shares of the bullion exchange-traded funds,

iShares Comex Gold Trust

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streetTRACKS Gold Shares

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were slipping also.

Elsewhere in precious metals, the European Central Bank provided confirmation that it had indeed been a heavy seller last week, with sales of gold and receivables totaling 499 million euros, or approximately 34 tons. The institution liquidated about 7.5 tons in the previous period.

In Asia, however, things are looking brighter.

"After real estate, gold is fast emerging as a new asset class for retail investors in India," notes Scotiabank in its precious metals quarterly, published Monday. "China too has witnessed an increase in demand for small medallions and bars."

In base metals, the weaker housing figures put downward pressure on copper prices, with contracts for December delivery of the red metal losing 3.95 cents at $3.375 a pound on the Comex.

Copper is used for electrical wiring and water pipes in housing construction so a slowing residential housing market will likely impact demand for the red metals.

However, looking further ahead, there are other factors at work.

"The market is roughly divided right now," says Alex Heath, base metals analyst with RBC Capital Markets in London. "Half the market is citing the slowdown in the U.S. economy, while the other half sees heavy demand from countries like Russia, China and Brazil" and possible supply disruptions in the fall.

Heath adds that the supply demand balance remains squarely balanced for copper, zinc and nickel.

Shares of

Rio Tinto




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, which together majority-own the Chilean Escondida copper mine, were moving down, off 2% and 1.4% respectively.