US gold futures finished $6 higher on Monday as investors bet on a lavish rate cut by the Federal Reserve at Tuesday's policy-setting meeting, and as signs that the global credit crisis will fail to end soon attracted safe-haven buying.
"We are definitely seeing some strong buying just as we did on Friday," because of anticipation of the Fed cutting interest rate by half a percentage point, Carlos Perez-Sandal at Hudson River Futures said from the Comex floor in New York. Most-active December gold on the Comex division of the New York Mercantile Exchange settled up $6 at $723.80 an ounce, trading between $714.80 and $728.90 a 14-month high.
Perez-Sandal also cited buying by funds and exchange-traded funds (ETF) for gold's rise on Monday. The Fed will render its rate decision and comment on its policy outlook on Tuesday, when the US central bank is widely expected to lower benchmark federal funds interest rates, now at 5.25 percent, by at least a quarter-percentage point to help the economy weather a housing downturn and a credit squeeze.
US stocks were lower in afternoon trading and the European stock markets closed sharply down on Monday as Britain's embattled bank Northern Rock said it had been granted an emergency facility by the Bank of England.
Shares of UK's fifth-biggest mortgage lender plunged for a second day on Monday, as thousands of customers queued to withdraw savings from Northern Rock. Gold is used as a hedge against oil-led inflation, while a lower greenback makes gold, which is denominated in US dollars, cheaper for holders of other currencies. Gold is also seen as an alternative form of money for investors who are bearish on the US currency. Meanwhile, the tonnage growth in gold ETFs showed no sign of slowing down despite the market turmoil.
Bullion used to back streetcar's gold shares, the world's largest gold ETF by far, remained at a record 567 tonne as of Friday, and latest data shows. On Friday, gold futures finished lower in volatile trading as decent safe-haven buying gave way to profit taking.
"The fear of the possibility of a rebound in the dollar, a significant slowdown in the global economy, and a resurgence of the credit panic hovering in the background is preventing the investors to stay invested at such high levels," Pradeep Unni, assistant vice president of Vision Commodities in Dubai, said in a client note. Though the long-term outlook for gold was optimistic, a sharp sell-off could be possible in the near term because of investor fears, Unni said.
Comex estimated final volume at 81,668 contracts, and gold options at 9,661 lots. At 2:44 pm EDT (1844 GMT), spot gold was quoted at $716.80/717.60, compared with the $707.30/708.10 an ounce late on Friday.
The London afternoon gold fix was set at $719. Comex December silver finished up 19.50 cents or 1.5 percent at $12.900 an ounce, dealing between $12.675 and $12.980. Spot silver traded at $12.75/12.80 an ounce, compared with $12.52/12.57 late on Friday.
London silver was fixed at $12.59 per ounce. Nymex October platinum gained $3.40 to end at $1,302.60 an ounce. Spot platinum was quoted at $1,298.30/1,305.30. December palladium reversed losses to close $1.60 higher at $335.35 an ounce. Spot palladium was at $328.75/332.75.