Gold pares losses

Gold pared most of its losses in volatile trade on Wednesday on safe-haven buying and bargain hunting at lower price levels, traders said. Longer-term sentiment remained strong and the metal was expected to exceed this year's historic highs of $914 an ounce. Gold fell as low as $876.40 an ounce before climbing to $895.60. The metal was quoted at $887.20/887.90.
It closed at $890.30/891.00 in New York on Tuesday, when prices tumbled to a 3-week low of $849.50 before a surprise rate cut by the US Federal Reserve sparked a rebound to $894.30. "Initially we saw it off with weaker stocks. Although there may be some flight-to-cash selling around, increasingly people need some kind of safe-haven to cling to," said Simon Weeks, director of metals trading at Bank of Nova Scotia. "I think the dip to $850 was your last chance for a while to buy some 'cheap' stuff."
Gold, which moved in a range of more than $40 on Tuesday, has lost nearly 3 percent since hitting a record high of $914 in January, as sliding energy and global equity prices forced investors to sell the metal to cover margin calls.
The Federal Reserve on Tuesday cut benchmark interest rates by three-quarters of a percentage point - the biggest rate cut in more than 23 years - in an emergency bid to boost a US economy that some fear is on the verge of recession.
"Gold prices benefited from yesterday's rate cut, and further cuts in addition to inflationary fears and concerns about growth of the economy are likely to buoy prices in forthcoming months," said Suki Cooper, analyst at Barclays Capital.
"But we would not rule out a short term price correction." A Reuters global poll of 50 traders and analysts showed average gold prices will surge more than 20 percent this year and retain most gains in 2009 as dollar weakness, market turmoil and inflation fears stoke investor interest.
But analysts said weaker oil prices might weigh on the metal, traditionally seen as a hedge against oil-led inflation, in the coming days. Oil fell below $88 a barrel as stock markets fell further, shrugging off a temporary reprieve from Tuesday's steep cut in US rates amid persistent fears of a global economic slowdown.
Britain's leading shares slipped more than 2 percent, while US stocks slid at the open on recession worries and a weak profit outlook from iPod maker Apple Inc as the Nasdaq composite index crossed a bear market threshold.
"From here, gold's correction appears to have run its course for now, although if the dollar is set to rally ... then the metal could come under renewed pressure soon," said John Reade, head of metals strategy at UBS Investment Bank.
"We hold our one-month forecast of $850/oz." In other markets, the benchmark gold futures contract on the Tokyo Commodity Exchange rose by the daily 120 yen per gram limit after the Fed's rate cut lifted sentiment.
US gold futures fell, with the most active February contract down $1.3 an ounce at $889.00. On the production front, South Africa surrendered its crown as the world's biggest gold producer last year to China, marking a changing of the guard and confirming analysts' concerns about the country's dwindling ore grades.
Platinum was down $5.50 at $1,549.50/1,554.50 an ounce, but off Tuesday's one-month low of $1,507 an ounce. In industry news, Anglo Platinum said that flooding had disrupted production at its Amandelbult mine, which was expected to produce 50,000-70,000 ounces of refined platinum this year.
It said output at the mine had been reduced to 25 percent of normal capacity and may take nine to 12 weeks to restore. Silver was at $16.04/16.09 an ounce, versus $16.01/16.06 in New York, while palladium edged down to $363.50/368.50 an ounce from $366.50/371.50.