Metals - Gold spikes higher as Fed Reserve Board credit rate cut hurts dollar

Metals - Gold spikes higher as Fed Reserve Board credit rate cut hurts dollar

	Published : Fri, 17 Aug 2007 14:09 By : Agencies Print this Story

LONDON (Thomson Financial) - Gold rose sharply in early afternoon trade after the Federal Reserve Board announced it has cut its discount rate on loans to banks in response to the current crisis in the global credit markets, knocking the dollar.

The board approved a 50 basis point reduction in the primary credit rate to 5-3/4 pct, saying increased economic uncertainty illustrated by the sharp falls seen in share prices in recent days poses risks for US business growth.

The news sent the dollar lower, consequently boosting gold. Immediately after the move was announced the euro rose to 1.3509 against the US currency, up from 1.3465 usd previously, while the pound rose to 1.9881 usd from 1.9815 usd previously.

The precious metal is typically seen as an alternative investment to the dollar and moves in an inverse relationship to it.

At 1.45 pm, spot gold was trading at 659.33 usd an ounce against 648.20 usd in late New York trade yesterday, having earlier reached an intraday high of 660.23 usd.

'The dollar (weakening) is definitely the first factor here,' said Jon Nadler, an analyst at Kitco Bullion Dealers. 'Although we would have to expect a bounce after yesterday's washout.'

Gold was trading steadily earlier near 650 usd an ounce after tumbling by 3 pct yesterday as the large sell-off in equities forced funds out of the precious metal.

Commodities fell across the board as lower equities saw traders sell off to cover losses elsewhere and flee risky markets, like oil, metals and even gold, which is a traditionally a safe haven asset.

The market is continuing to watch moves in global equities today, after a late turnaround on Wall Street Thursday pared some of gold's losses. A rebound in European share prices today and an expected higher opening on the New York stock market is supporting sentiment.

But the sustainability of gold's present rally will not become apparent until Wall Street opens later this afternoon, added Nadler.

'A lot now depends on how much confidence returns to the financial markets,' he said. 'The volatility we saw yesterday is far from over.'

Elsewhere, oil and base metals prices recovered slightly after heavy losses yesterday, lending support to gold.

Gold prices tend to rise in line with oil, as the precious metal is used as an inflationary hedge against rising fuel costs.

The approach of the Indian wedding season, where gold jewellery is a traditional gift, could lend some support to gold, as jewellers look to restock at lower prices, analysts said.

Among other precious metals, silver traded at 11.80 usd against 11.53 usd, after losing almost 1.50 usd yesterday.

Platinum was up to 1,244 against 1,234 usd while palladium dipped to 329 usd from 331 usd.

jan.harvey@thomson.com

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