Gold prices were moving down slightly Tuesday after a new government report showing relatively tame consumer price increases reduced demand for the metal as an inflation hedge.

June-dated bullion contracts were losing $1.40 at $693.10 an ounce in New York. The exchange-traded funds

streetTracks Gold Shares

(GLD) - Get Report

and

iShares Comex Gold Trust

(IAU) - Get Report

were off about 0.2% recently.

The Labor Department says the core rate of inflation, which excludes volatile food and energy components, fell to 0.1% in March from 0.2% in February.

"The

Federal Reserve

has been forecasting that inflation would move back into its comfort zone on its own," without the need to tighten monetary policy, says Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh. "It's not yet in their comfort zone, but its getting close to that."

Fed policymakers are believed to want to keep consumer price inflation below 2% a year. News of lower inflation will likely dampen demand for gold, which some investors purchase to offset the asset-withering effects of rising consumer prices.

Turning to the technical side, Jon Nadler, an analyst at Montreal-based bullion dealer Kitco, sees gold prices consolidating for a while before any further spike higher.

In the interim, he sees resistance kicking in at around $695 to $700 on the June contract, with support down around $673. Bullion prices have rallied from slightly above $600 an ounce in early January.

As for the official sector, the European Central Bank says it sold 31 million euros of gold and receivables, or almost 2 tons, last week, down from almost 12 tons a week earlier.

Among the miners, shares of

Newmont Mining

(NEM) - Get Report

and

Barrick Gold

(ABX)

were both slipping about 0.3% in recent action.

Turning to base metals, Comex copper contracts were adding 3 cents at $3.57 a pound recently.

"The pattern of strong openings

for copper and a tail-off in the afternoon seems to be developing while prices consolidate, but at some stage we expect prices to push higher again," writes William Adams, an analyst at

BaseMetals.com

in London, in a recent report.

Copper prices have rallied from around $2.40 a pound in early February as demand from China has picked up following a slowdown in consumption during the latter part of 2006.

Elsewhere, HSBC Securities raised its rating on shares of diversified miner

Rio Tinto

( RTP) to overweight from neutral, but traders were still marking down the stock 0.9%.

As for the ferrous metals sector, Matrix Research dinged shares of

Olympic Steel

(ZEUS) - Get Report

down to a sell rating from a buy, sending the shares off 3.5% recently.