Gold and oil were tossed overboard on Tuesday after investors reacted to tough inflation talk from the U.S. Federal Reserve, a surging U.S. dollar and a new forecast for decreasing oil consumption in the United States.

Crude oil fell to $131.31 (U.S.) a barrel in afternoon trading, down $3.04. The shift occurred around the same time that the U.S. Energy Department reported that high energy prices are affecting consumption more than expected in the industrialized world, in a process known as demand destruction. The Energy Department cut its forecast for U.S. oil consumption in 2008 by 240,000 barrels a day, a notable shift given that the department said just last month that consumption would remain unchanged.

Gold fell to $866.68 an ounce, down $27.22 or 2.9 per cent, its steepest drop in percentage terms since the start of April, after investors grew concerned that the Federal Reserve could raise its key interest rate this year to head off the threat of inflation and give some life to the U.S. dollar. The greenback didn't do much against the Canadian dollar, but it surged 1.2 per cent against the euro, the biggest one-day rise in about six weeks.

The commodity-heavy S&P/TSX composite index closed at 14,736.20, down 224.56 points or 1.5 per cent. The index was weighed down by materials stocks, which plunged 3.7 per cent, the biggest drop since the end of April. In particlar, Barrick Gold Corp. fell 6.6 per cent. Energy stocks fell 2.4 per cent, with Suncor Energy Inc. tumbling 3.8 per cent. Financials were flat.

The Dow Jones industrial average closed at 12,289.76, up 9.44 points or less than 0.1 per cent. The broader S&P 500 closed at 1358.44, down 3.32 points or 0.2 per cent. Exxon Mobil Corp. and Chevron Corp. were the biggest drags, falling 1.3 per cent and 2.4 per cent, respectively. On the upside, Coca-Cola Co. rose 3.9 per cent after an analyst at Deutsche Bank upgraded the stock to a "buy" recommendation. As well, Apple Inc. rose 2.2 per cent on enthusiasm for its new iPhone.