(Recasts; updates with closing prices, market activity,
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By Frank Tang
NEW YORK, March 18 (Reuters) - Gold turned sharply lower in
Tuesday's after-hours electronic trade after the U.S. Federal
Reserve delivered a less-than-expected rate cut, but bullion
should benefit in the long term because of the increasing
threat of inflation.
After the end of Tuesday's U.S. pit trade session, the
Federal Reserve slashed its target interest rate by
three-quarters of a percentage point, a substantial cut but
smaller than many in financial markets had expected, as part of
an effort to hold off a deep recession and financial meltdown.
"The committee expects inflation to moderate in coming
quarters, reflecting a projected leveling out of energy and
other commodity prices and an easing of pressures on resource
utilization," the U.S. central bank said in a statement.
By 4:04 p.m. (2004 GMT), the active U.S. gold contract for
April delivery <GCJ8> on the COMEX division of the New York
Mercantile Exchange accelerated losses to trade $24.10 lower at
$978.50.
However, experts said the Fed's aggressive rate cuts to
boost the U.S. economy would help gold because of the use of
bullion as a hedge against inflation.
"In the long term, none of what the Fed has done has cured
some of the problems that have plagued the economy and the
financial system. They are still with us. To me, the outlook
for gold is still very positive," said Joseph Foster, portfolio
manager of Van Eck International Investors Gold Fund in New
York, which has $850 million of assets.
"And, ultimately, with the Fed's aggressive easing,
eventually it's going to create inflationary pressures
somewhere down the road. You can't keep dropping interest rates
and not expect some kind of adverse reaction at some point,"
Foster said.
GOLD ENDS UP BEFORE FED
Prior to the Fed's announcement, gold ended slightly higher
on inflation fears due to a bounce in crude oil prices.
Bullion <XAU=> rose as high as $1,012.30 an ounce and was
at $1,002.30/1,003.10 by New York's last quote at 2:15 p.m.
(1815 GMT), against $1,001.00/1,001.80 late in New York on
Monday.
It spiked to an historic high of $1,030.80 on Monday on
concerns over the U.S. financial sector and a weak dollar
before profit-taking erased most of the gains.
The U.S. gold contract for April delivery <GCJ8> settled up
$1.70 at $1,004.30 an ounce.
Rising crude oil prices also boosted gold. On Tuesday, U.S.
crude futures <CLc1> settled $3.74 higher at $109.42 a barrel,
after falling nearly $7 on Monday.
However, high prices continued to hit physical demand. Gold
imports by India, the world's largest consumer, plunged to 10
tonnes in February from 59 tonnes in the same month a year
ago.
Gold has gained more than 23 percent this year on fears of
inflation as crude oil has hit records, expectations of further
rate cuts and deepening U.S. financial concerns.
In other metals, platinum <XPT=> hit a 1-week low of $1,935
an ounce and was last at $1,960/1,970, against its previous
finish $1,980/1,990 in New York and off a record high of $2,290
hit on March 4.
Platinum was supported by news that South African power
utility Eskom may have to inform mines of a force majeure if
more of its generators trip, Eskom spokesman Andrew Etzinger
told Reuters. []
Silver <XAG=> traded at $19.61/19.66 an ounce, versus its
Monday's finish of $20.35/20.41 in New York, while spot
palladium <XPD=> rose nearly 3 percent to $477/482 an ounce
from $465/470 late in the U.S. markets on Monday.
(Additional reporting by Anna Ringstrom and Atul Prakash in
London; Editing by Walter Bagley)
