* Gold largely unchanged after Fed held rates steady
* Platinum drops to its lowest level since October 2006
* Investors sell precious metals and opt for cash
(Recasts, updates with Fed rate decision, quotes, closing
prices, adds NEW YORK to dateline)
By Frank Tang and Agnieszka Flak
NEW YORK/LONDON, Sept 16 (Reuters) - Gold dropped on Tuesday
as jittery investors sold heavily to cover losses in other
markets and as the Federal Reserve held interest rates steady,
while platinum plunged almost 10 percent amid financial
turmoil.
The U.S. central bank kept its target for its Fed Funds rate
at 2 percent and said in a statement that "strains in financial
markets have increased significantly" and "economic growth
appears to have slowed recently." []
Spot gold <XAU=> was at $779.90/781.30 an ounce at 1:41 p.m.
EDT (1741 GMT) by New York's last quote, compared with Monday's
close of $786.20. Earlier it touched a one-week high of
$786.95.
On Monday, gold soared 3 percent as investors sought a safe
haven in bullion amid mounting fears about the stability of U.S.
banks and financial companies.
George Nickas, precious metals broker of FC Stone in New
York, said that a panic mentality led to an aberration of the
weak and volatile gold prices, which did not reflect strong
fundamental factors in the physical bullion market.
On Tuesday, gold limited losses in spite of sharply lower
oil prices because of safe-haven buying following speculation
about a possible rescue of major insurer American International
Group (AIG) held Wall Street in its grip. []
Bill O'Neill, managing partner of New Jersey-based LOGIC
Advisors, said that if the bailout of AIG succeeded without
wreaking havoc in financial markets, that could be bearish for
gold as it showed the Federal Reserve's strong resolve.
U.S. gold futures for December delivery <GCZ8> settled down
$6.50 at $780.50 an ounce on the COMEX division of the New York
Mercantile Exchange.
GOLD ETFs SLUMP
Investor selling of gold held by exchange-traded funds also
knocked confidence in the precious metal, analysts said.
ETF Securities said on Monday that the amount of gold it
held to back its Physical Gold <PHAU.L> exchange-traded
commodity fell by 16 percent last week to 1.551 million ounces.
In addition, ETF Securities said on Tuesday that some banks
and brokerages ceased making markets in commodity securities
backed by matching contracts from troubled insurer AIG on Monday
afternoon. []
The world's biggest gold-backed ETF, SPDR Gold Trust <GLD>,
said its holdings fell more than 37 tonnes, or 5 percent, since
the beginning of September.
"Index divestment and possibly ETF disinvestment may be
weighing on gold for reasons of growing or new awareness of
counter-party risks in owning these products," UBS analyst John
Reade said in a note to clients.
PLATINUM GROUP METALS TUMBLE
Platinum also slid almost 10 percent on Tuesday to its
lowest level since October 2006 as a weakening global economy
hit demand from auto makers, with car sales dropping in Europe,
China and the United States.
Platinum, mainly used in auto-catalysts, lost half of its
value in the last six months from a record high of $2,290 an
ounce in March as consumer confidence dipped and demand for cars
weakened on the back of high fuel prices and weaker economies.
However, traders said that platinum plunged largely due to
heavy liquidation by nervous investors to cover losses in other
markets.
"I don't think there is any fundamental news for platinum
(but) there is a panic to raise cash," FC Stone's Nickas said.
Spot platinum <XPT=> dropped to $1,055 an ounce, the lowest
level since October 2006, and was last quoted at
$1,054.00/1,074.00 an ounce from Monday's U.S. market close of
$1,164.50.
Demand for new cars in Europe fell by 7.3 percent in July
and 15.6 percent in August compared with a year ago. Over the
first eight months of the year, new car registrations in Europe
fell by 3.9 percent. []
Spot palladium <XPD=> tumbled more than 5 percent, falling
in line with platinum to trade 4.3 percent lower at
$219.00/227.00 an ounce.
Spot silver <XAG=> was trading 4.3 percent lower at
$10.59/10.64 an ounce, from Monday's close of $11.08 in New
York.
(Editing by Matthew Lewis)
