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Gold steadies at lower levels
as markets digest Fed rate cut
Thomson
Financial
Thursday January 31, 2008
Gold steadied at lower levels as players digested the effects
of yesterday's widely expected rate cut by the US Federal Reserve,
which weighed heavily on the dollar but failed to boost global
equities.
The Fed yesterday cut rates by 50 basis points and indicated
further rate cuts are on the horizon as the US economy slows in
the face of a housing and credit market crisis.
The move, which came after a 75 basis point emergency cut last
week, failed to reassure markets, with US equities closing lower
on the day and shares in Europe falling today.
'The FOMC statement points to another rate cut ... these factors
make gold more attractive against further US dollar weakness,'
said Dresdner Bank (other-otc: DRSDY.PK - news - people ) analyst
Peter Fertig.
(Article continues below)
He noted, however, that the main argument for the cut was the
considerable stress of financial markets and tight credit - which
quickly returned to centre stage amid rumours rating agencies
are to downgrade bond insurers.
Equity market weakness can in the short term weigh on gold as
it forces players to sell profitable gold holdings to raise cash
to cover margin calls in equities.
Longer term, however, the outlook for gold remains positive as
the rate cuts point to more dollar weakness ahead, and as the
broader US economic troubles increase the appeal of gold as a
safe haven asset.
'Further US dollar weakness should cause gold prices to rise
further from here to potentially break 950 usd an ounce in the
next few weeks,' said Fairfax analyst John Meyer.
Gold is seen as an alternative asset to the US currency and often
moves in the opposite direction to it.
At 10.01 am, spot gold was trading at 920.40 usd per ounce against
921.25 usd in late New York trades yesterday. On Tuesday gold
touched a record high of 932.98 usd.
Gold has gained some 18 pct since Sept 18 last year, when the
Fed began cutting borrowing costs amid the onset of the housing
market crisis and credit crunch.
Full
article here.
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