Gold down $10 on US rate cut

Dec 17 2008 09:09

Sydney - Gold recoiled on Wednesday, giving back more than $10 after a strong showing overnight on the back of the latest US interest rate cut.

The US Federal Reserve cut its target for overnight rates to a record low zero to 0.25%, and said it would employ "all available tools" to dispel a year-long recession.

Spot gold was fetching $847.20 an ounce against New York's last notional close of $857.35. In the last week, gold has gained as much as 11%.

Dealers cited selling by investors in Asia as the price hovered around $857 an ounce for bullion losing some of its polish.

Still, the plight of the dollar, which was near 13-year lows against the yen and two-and-half-month troughs versus the euro, was side lining some arbitrage investors who otherwise might look to cash in bullion for greenbacks, they said.

"The passing of the US Fed rate announcement should take some ammo away from the gold longs and a potential drop in the oil price will dampen inflation hedge support," Australia & New Zealand Bank commodity research head Mark Pervan said in a report.

US February gold was up 0.72% at $848.90 an ounce on the Comex division of the New York Mercantile Exchange, after settling up $6.20 at $842.70 prior to the Fed announcement.

The benchmark October gold contract on the Tokyo Commodity Exchangerose ¥13 to ¥2 431 per gram to yen.

The Bank of Japan holds a two-day meeting Thursday and Friday with speculation that the Japanese central bank will be forced to follow the Fed's lead, driving domestic interest rates back toward a zero policy and potentially triggering gold buying.

Spot platinum dropped $3.50 to $854.00 an ounce after gaining 5% from its previous finish of $817 in New York on Monday.

Spot palladium was down $2 to $176.00 as traders awaited news on a US plan to bail out carmakers, the main buyers of platinum group metals.

Spot silver was higher at $11.15 an ounce versus $11.11 in New York.

- Reuters