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Gold up after Fed cuts interest rates
Gold bounced back from three-week lows yesterday the dollar tumbled against the euro after the US Federal Reserve unexpectedly slashed interest rates by 75 basis points.
- Reuters
- Published: 00:41 January 23, 2008
London: Gold bounced back from three-week lows yesterday the dollar tumbled against the euro after the US Federal Reserve unexpectedly slashed interest rates by 75 basis points.
Spot gold rose as high as $874.65 an ounce in volatile trading and was quoted at $872.90/$873.60 by 1349 GMT from $867.10/$867.80 in late European trade on Monday. It fell as low as $849.50 earlier in the day.
"Gold was already showing signs of recovery before the Fed's move, but all the precious metals are now well bid. The euro is up over one per cent from its intra-day low and some degree of relative normality is returning to equities," said Tom Kendall, metals strategist at Mitsubishi Corporation.
Bit risky
"It is a bit risky to say that we are out of the woods completely as far as the correction in gold goes, but it certainly looks that way and $890 is the first meaningful target."
The dollar fell sharply against the euro after the Fed unexpectedly slashed its benchmark overnight lending rate in a bid to allay market fears about a US recession.
The Fed's emergency move, precipitated by a global equities market rout, has wiped out the dollar's yield advantage over the euro. The Fed funds rate target is now at 3.5 per cent.
The Fed's move helped US stock index futures cut losses, but some analysts said the step was a sign of panic on the part on monetary authorities.
A rate cut prompts investors to switch to alternative assets, including gold.
A gloomy economic picture also often helps the metal, traditionally seen as a safe-haven asset that generally moves in the opposite direction of the dollar.
A lot worse
"They [Fed] must know of something going on and things are a lot worse than even the worst bears had thought, that the economy really is in recession going from bad to worse," said Robin Bhar, metals analyst at UBS Investment Bank.
"This smacks of panic and desperation, but is obviously bullish for gold as interest rate cuts make gold more attractive," he said.
But investors remained nervous about the global economic outlook.
Comments from IMF managing director Dominique Strauss-Kahn on Monday that all developed countries were suffering from the US slowdown entrenched fears that global growth was hitting a wall.
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