NEW YORK—Gold prices fell sharply Tuesday after the dollar gained some muscle against the euro, weakening the appeal of precious metals as an inflation hedge.

Other commodities traded mixed, with crude oil shooting to a new record near $127 a barrel and agriculture futures broadly falling.

The dollar rebounded after Federal Reserve Chairman Ben Bernanke said Monday that turmoil in financial markets was “far from normal” but had eased somewhat. Bernanke credited the improvements to the Fed’s efforts to help distressed banks and investment firms overcome the credit crisis...