Bears dominated gold trading yesterday as the metal slumped below US$340 per ounce amid analysts' claims it was fast losing its allure as a hedge against inflation. The London afternoon fix was $339.90, against the previous closing price of $341.45, with traders citing continued negative sentiment. On Tuesday, the yellow metal dropped $4.70 after the release of lower than expected US consumer price inflation figures. The next key chart point is said to be the February 12 low of $336.15, which would bring it to its lowest point for 46 months. Comex gold futures in New York also saw new contract lows in early trade, as funds maintained selling pressure. June gold futures were down $1.80 to $342.10, after seeing a new contract low late on Tuesday of $339.50. Spot gold, which prices bullion in New York, was quoted yesterday at $339.80-$339.30, recovering slightly from its early fall to $337.50. Traders said further price pressure came after Washington reported much weaker than expected US housing starts figures. Housing starts fell 6.4 per cent in March, indicating a lack of inflationary pressure, making gold less attractive due to its position as the ultimate inflation hedge. 'Remember, this comes against better than expected consumer prices on Tuesday, which were up only 0.1 per cent, which also shows that gold is just not the commodity that people need at the moment,' a trader said. 'The recent rise in US [interest] rates, and these low inflation numbers make gold really unfashionable.' Union Bank of Switzerland bullion analyst Andy Smith said the sell-off underlined a more structural adjustment being made in the gold markets. 'Stock holders just don't want the stuff anymore,' he said. 'What does it offer that you could not get a design on in any other way?' Mr Smith said the proliferation of bonds and other debt instruments in financial markets made gold less important within a portfolio, even as a hedge against inflation. 'We'd have to be in the financial dark ages for gold to be popular again.' He said the commodity was being rejected by central banks in Europe out of the need to narrow budget and public deficits to meet European Monetary Union, while private investors did not regard it as a core holding.