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SINGAPORE)
By Anna Ringstrom
LONDON, March 19 (Reuters) - Gold fell more than 3 percent
on Wednesday after a lower than expected interest rate cut by
the U.S. Federal Reserve and two forecast-beating bank reports
dimmed bullion's appeal.
Gold <XAU=> fell to a one-week low of $966.10 and was at
$969.60/970.50 an ounce at 1320 GMT, against $1,002.30/1,003.10
late in New York on Tuesday.
"People were looking at a 1 percent cut and there was only
75 basis points, so there is disappointment," said Dan Smith,
analyst at Standard Chartered Bank, referring to the rate cut.
"Also, we have seen some numbers indicating physical demand
is not holding up very well," he said.
The U.S. central bank on Tuesday slashed the benchmark
federal funds rate by 75 basis points to 2.25 percent, and
bolstered hopes that it is acting aggressively to contain damage
to the economy and financial system from housing troubles and a
credit crisis.
Financial markets had expected the Fed to lower interest
rates by 100 basis points.
Lower rates typically reduce the attractiveness of the
dollar, which in turn makes gold cheaper for holders of other
currencies and often lifts bullion demand.
The dollar remained choppy, initially strengthening after
the Fed news, but erasing gains as dealers maintained their
bearish view on the currency.
Together with better-than-expected earnings reports from two
top investment banks, the Fed rate cut sparked a sharp rally on
Wall Street on Tuesday, that warmed up risk appetite and
prompted investors to buy back the U.S. currency.
"Better numbers from Morgan Stanley than expected and
reassuring statements from Lehman and Goldman Sachs yesterday
have given people a better feeling about the cash crunch," said
Simon Weeks, managing director, precious metals at Bank of Nova
Scotia.
Morgan Stanley <MS.N> on Wednesday said first-quarter
earnings fell amid write-downs in mortgages and loans yet
resilient trading results helped the second-largest U.S.
investment bank exceed lowered expectations by a wide margin.
Less gloomy quarterly earnings than feared from investment
banks Goldman Sachs and Lehman following the near collapse of
Bear Sterns added to easing credit fears.
Gold has risen more than 23 percent in 2008 on fears of
inflation as oil hit records, hopes of further rate cuts and
U.S. financial concerns. Analysts said the increasing threat of
inflation would in the longer term help to support gold.
"Gold will continue to flirt with the $1,000 marker until
after Easter, then it might get more exciting again," said Nick
Moore, metals analyst at ABN Amro.
"We should look at gold prices consolidating, and later in
the year advancing as inflation concerns persist ... and the
dollar weakness remains a major support."
In other metals, spot platinum <XPT=> fell to $1,900/1,920
an ounce from $1,960/1,970 in New York on Tuesday -- well below
a record high of $2,290 hit on March 4.
Silver <XAG=> fell to $19.35/19.40 an ounce from
$19.76/19.81 in the U.S. market late on Tuesday while spot
palladium <XPD=> fell to $466/471 an ounce from $477/482.
(Reporting by Anna Ringstrom, Editing by Peter Blackburn)
