US gold futures finished sharply higher in choppy trade on Tuesday, boosted by a lower dollar and bullish bets that the expected rate cut by the Federal Reserve will increase liquidity in the bullion market. "You have the fact that the Bank of Canada cut rates today, So (investors think) there will be worldwide liquidity.
It also pumped much liquidity into the system, and that was very bullish for gold," said Neal Greenberg, trader with RBC Proprietary Trading in Red Bank, New Jersey. Most-active February gold on the Comex division of the Nymex settled up $12.90 or 1.6 percent at $807.60 an ounce, trading between $792.60 and $811.70.
The Bank of Canada on Tuesday unexpectedly cut its overnight lending rate by 25 basis points to 4.25 percent. Markets expected the Bank of England could follow suit later this week, supporting the view that central banks were becoming increasingly worried by the credit crisis.
The Federal Reserve is expected to cut US rates by 25 to 50 basis points next on Tuesday. An interest rate cut lowers the cost of borrowing and makes bullion more attractive compared to fixed-income investments. "I think gold's on its own right now," said Jonathan Jossen, an independent Comex floor trader in New York.
Jossen also said that the near-term direction of gold could depend on the strength of the bullion exchange-traded funds (ETFs) and investment demand, and whether global geopolitical tensions heat up.
Bullion holdings used to back StreetTRACKS Gold Shares, the world's largest gold ETF accounting for more than 80 percent of all such funds, were at 601.65 tonnes on Tuesday, after setting a record 609.33 tonnes last week.
The euro was up about 0.6 percent against the dollar on Tuesday. A lower dollar makes gold, which is denominated in the US currency, cheaper for investors holding other currencies. Total turnover in Chicago Board of Trade electronic 100-oz gold futures was 21,103 lots at 2:41 pm.
At 2:15 pm, spot gold was quoted at $803.80/804.50 an ounce, compared with $790.10/790.80 in New York on Monday afternoon. London bullion dealers fixed the afternoon spot reference price at $797.50. Looking forward, traders said that choppiness could remain commonplace for gold in the near term.
"You're getting toward the end of the year. So it's going to be extremely volatile because the volume dries up," said RBC's Greenberg. Meanwhile, platinum and other precious metals prices were buoyed by supply fears after the one-day mining strike in South Africa.
Almost a quarter of a million miners downed tools on Tuesday in a show of force aimed at breaking a cycle of mounting deaths in mines, disrupting output in the country. A union spokesman vowed that workers would strike again if mining companies did not improve work safety for miners.
Anglo Platinum, the world's top platinum producer, which accounts for 40 percent of world supplies, said the firm would lose 9,000 refined platinum ounces. No 2 Impala also expected output loss. Nymex January platinum finished up $10.90 at $1,472.30 an ounce, on top of Monday's solid gains.
Spot platinum was quoted at $1,466/1,471. March palladium ended $1.75 higher at $353.40 an ounce. Spot palladium fetched $346/349. Comex March silver closed up 25.50 cents or 1.8 percent to $14.465 an ounce, trading between $14.185 and $14.570. Spot silver was quoted at $14.30/14.35 an ounce, compared with $14.09/14.14 late on Monday in New York. London silver was fixed at $14.250.
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