US gold futures finished slightly higher on Tuesday on the back of inflation fears due to a bounce of crude oil prices, after heavy liquidation erased sharp initial gains which took the market to record highs on Monday.
Adam Hewison, president of INO.com in Annapolis, Maryland, said that he would not be surprised to see some backing and filling in gold after the previous session's significant pullback.
"Psychologically, the perception of the market has been somewhat dampened with the action yesterday. If we close lower than we did last on Friday, then certainly there are going to be a lot of question marks since we might have seen a top on the gold," Hewison said.
The active gold contract for April delivery on the Comex division of the New York Mercantile Exchange settled up $1.70 at $1,004.30 an ounce. It traded between a session high of $1,004.30 and a bottom of $994.80. On Monday, panic buying amid turmoil in global financial markets due to a fire sale of Bear Stearns initially sent gold futures to a record high of $1,033.90.
However, the April contract finished at $1,002.60 an ounce due to full-scale selling late in the session. Hewison said that $960 an ounce would be a major support area for gold. However, he expects gold quite easily to pull back below $1,000. Rising crude oil prices also boosted gold, which is used as a hedge against inflation.
US crude futures settled $3.74 higher at $109.42 a barrel after falling nearly $7 on Monday. Comex estimated final gold futures volume at 161,956 contracts and gold options at 19,482 lots. After on Tuesday's pit trade session, the Federal.
Reserve slashed a key US 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 levelling out of energy and other commodity prices and an easing of pressures on resource utilisation," the US central bank said.
The April contract accelerated losses to trade down $17.20 to $985.40. "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 rate and not expect some kind of adverse reaction at some point," Foster said. By New York's close at 2:15 pm, spot gold traded at $1,002.30/1,003.10, up from $1,001.00/1,001.80 at the close Monday.
London bullion dealers fixed the afternoon spot price at $1,006.75 an ounce. Comex's May silver closed down 34.0 cents or 1.7 percent to $19.960 an ounce. It traded between a bottom of $19.850 and a high of $20.510. Spot silver dropped to $19.76/19.81 from $20.35/20.41 at Monday's close.
London silver was fixed at $20.38. The Nymex platinum contract for April delivery dropped $5.40 to close at 1,968.00 an ounce. Spot platinum fetched $1,960/1,970. Nymex June palladium finished $4.35 higher at $489.65 an ounce. Spot palladium was at $477/482.
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