Gold Rallies on Fed Rate Cut
AP Business Writer
Gold rebounded to end higher Tuesday after a Federal Reserve rate cut battered the dollar and prompted jittery investors to seek safe-haven assets to gird against a possible recession.
Other commodities fell sharply as a global equities sell-off fanned fears of an economic slowdown that could soften demand for products ranging from crude oil to soybeans and corn.
After opening sharply lower, gold for February delivery climbed $8.60 to settle at $890.30 an ounce on the New York Mercantile Exchange. It earlier rose as high as $899 an ounce.
Gold's rise was preceded by an overnight sell-off that saw it plunge to $849.50 an ounce _ its lowest level in three weeks.
"The gold market fell on equity worries but has come roaring back on the Fed rate cut," said James Steel, analyst with HSBC in New York. "That kicked the stool from underneath the dollar and really very swiftly reinvigorated gold."
Gold increased in value by nearly 32 percent in 2007 and barreled above $900 an ounce for the first time ever on Jan. 11.
"People are seeking comfort in gold while everything else is collapsing," said Kevin Grady, a gold trader with MF Global.
Other precious metals fell. Sliver for March delivery slipped 11 cents to settle at $16.105 an ounce on the Nymex, while March copper lost 3.8 cents to settle at $3.1965 a pound. Platinum fell $11.40 to $1,554.10 an ounce.
The Fed slashed its key interest rate by three-quarters of a percentage point to 3.5 percent _ the biggest single cut of its kind in recent memory. The Fed was responding to a global equities sell-off that has underscored fears that the United States may be headed for a recession that could drag down world economies.
Lower interest rates tend to weaken the dollar and encourage investors to buy hard assets like gold, which is considered a safe haven against falling currencies and economic uncertainty. A weaker dollar also makes commodities cheaper for overseas investors.
The dollar fell against its main rivals Tuesday, with the euro fetching $1.4612 in early afternoon trading.
In energy markets, crude oil dropped sharply on concerns that a U.S. recession would dampen demand for crude.
Light, sweet crude for February delivery fell 72 cents to settle at $89.85 a barrel on the Nymex, after earlier falling as low as $86.11. Oil last traded that low on Dec. 6.
Other energy futures also fell. February heating oil futures dropped 3.48 cents to settle at $2.4726 a gallon on the Nymex, while February gasoline futures fell 2.28 cents to settle at $2.2806 a gallon.
Meanwhile, agricultural futures ended lower, with soybeans falling on fears that a recession could weaken demand for the grain used to feed livestock and make alternative fuel.
Soybeans for March delivery plummeted 24.5 cents to settle at $12.395 a bushel on the Chicago Board of Trade after earlier slipping as low as $12.20. March wheat fell 28.5 cents to settle at $9.34 a bushel, while March corn lost 9.25 cents to settle at $4.89 a bushel.
Copyright © 2008 The Seattle Times Company
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