* Gold rises as stocks recover, Dow rallies 889 points
* Lower output, oversold conditions will support gold
* Dollar and yen retreat from early highs
(Recasts, updates with quotes, closing prices, market
activity, adds NEW YORK to dateline)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 28 (Reuters) - Gold prices ended
higher on Tuesday as a sharp recovery by global stock markets
and a dollar pullback triggered fresh buying ahead of a key
interest rate decision by the U.S. Federal Reserve.
"It's going to be an unknown how we will work out this
financial crisis, but gold's value relative to other assets is
going to get a higher premium because gold is not part of the
'tainted' financial system," said Robert Lutts, president of
Cabot Money Management, which oversees $400 million of client
assets.
Spot gold <XAU=> was at $737.50 an ounce at 2:24 p.m. EDT
(1824 GMT), up 1.1 percent from Monday's close of $729.60.
U.S. gold futures for December delivery <GCZ8> settled down
$2.40 at $740.50 an ounce on the COMEX division of the New York
Mercantile Exchange.
Gold has fallen 20 percent since it hit a high of $931 on
Oct. 10 as investors liquidated commodities and other assets to
cover losses in the stock markets.
The dollar and the yen retreated from early highs as a
800-point rally in the Dow Jones industrial average <> led
investors to lock in recent steep gains in carry trades
involving the two currencies.
Lower gold output as a result of higher production costs
and difficulties in finding new reserves should also support
gold prices, gold mining executives said.
Rene Marion, chief executive of Gammon Gold <GAM.TO>
<GRS.N>, a Canada-based gold miner, said that bullion prices
should rise further during a difficult credit environment.
"Currently, everybody is stretching to rethink their
capital projects. I think you will see reduction in gold going
forward fairly quickly," Marion said.
He expected gold prices to reach $1,500 an ounce by the end
of next year.
Cabot's Lutts said that positive supply/demand fundamentals
in the long run would allow prices well over $2,000 to be
achievable in the next several years.
"I think we are pretty close to an inflection point (in
gold) where we could be seeing some stabilization, and it all
rests on the dollar halting its run, and the fear coming out of
all markets," Lutts said.
Traders were watching the two-day rate-setting meeting of
the U.S. Federal Open Market Committee, which was widely
expected to cut rates in its decision on Wednesday.
PLATINUM, PALLADIUM JUMP
Platinum rebounded, climbing by 6 percent to its session
high of $821.50, as the softer dollar boosted interest in the
precious metal.
The metal was pressured to five-year lows on Monday amid
fears of falling demand from carmakers, who account for about
half of annual platinum consumption for catalytic converters.
"This might help turn attention back onto supply-side
issues," said Tom Kendall, precious metals strategist at
Mitsubishi Corp. "Though undoubtedly (there is) more bad news
to come from auto sector too in the weeks ahead."
Spot platinum <XPT=> was quoted at $788.00 an ounce, higher
than the $772.50 in late New York trade on Monday. Palladium
rose <XPD=> sharply to end at $176.50 an ounce, up from
Monday's close of $167.50.
Spot silver <XAG=> dipped to $8.81 an ounce an ounce from
its previous finish of $9.01.
Holdings of the world's largest silver-backed
exchange-traded fund, the iShares Silver Trust <SLV.A>, fell a
further 1 percent on Monday and were down 144 tonnes week on
week. []
(Editing by Walter Bagley)
