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London: Gold fell in the afternoon session yesterday, as the dollar rose sharply after the US Federal Reserve announced new coordinated liquidity actions.
Gold was quoted at $973.10/$974.00 at 1348 GMT after hitting a high of $985.30 from $974.10/$974.90 late in New York on Monday. It rose to a record high of $991.90 on March 6.
"It's a reaction to the Fed announcement and the euro/dollar move. It reflects that the Fed is taking care of the fears for a liquidity crisis," said Michael Blumenroth, metals trader at Deutsche Bank.
The dollar rose after the Fed announced global coordinated measures to inject liquidity into the financial system, easing concern about a deepening credit crisis and US recession.
Before the Fed's move, markets were expecting the US central bank to reduce its benchmark interest rate from threeper cent to 2.25 per cent at its next policy meeting on March 18. There are 100 basis points in a percentage point.
A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
But gold was expected to get support from strong oil prices, which rose to a record high for the fifth day in a row, boosted by investor flows into oil and other commodities.
"We have been battling here for quite a while now and if we don't manage to see a prompt move towards $1,000, we might see the market losing further momentum," said Frederic Panizzutti, analyst at MKS Finance.
Gold has struggled to sustain the uptrend after a failure to break through the $1,000 barrier last week. It has risen 19 per cent in 2008, driven by record high oil and expectations of further rate cuts in the US.
"With persistent problems in the US economy, rising crude oil prices and fund investors chasing the metal, it's easy to discern that gold is headed higher in the coming sessions," said Pradeep Unni, analyst at Vision Commodities.
"But it is also crucial to remember that this over-extended bull market is not devoid of a near term pull-back. In times of sharp rally, markets have a tendency to slide on their own weight, when the selling gets triggered."
Yo-yo syndrome
Platinum volatile
Spot platinum hit a high of $2,060 an ounce before falling to $2,045/$2,055, against $1,980/$1,990 late in New York on Monday, when it tumbled to a four-week low at $1,926 on news that miners in South Africa would get more power supply.
Supply concerns triggered by mining disruptions in South Africa, the world's top producer, lifted platinum to a record high of $2,290 on March 4. The metal, used in auto catalysts and jewellery, has risen as much as 50 per cent in 2008.
"Platinum remains very volatile. On the one hand, we have positive news about the power supply and on the other, we have some production cuts, which are going to further imbalance the supply demand this year," said Panizzutti said.
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