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London: Gold tumbled nearly six per cent to a three-week low yesterday, as investors rushed to take profits after a lower-than-expected US interest rate cut and as the dollar trim-med losses.
Other metals tracked gold, with platinum slipping more than three per cent to a one-month low, silver falling over seven per cent to a three-week low and palladium posting sharp declines.
Spot gold fell to a low of $942.30 an ounce and was quoted at $947.20/$948.10 at 1549 GMT, against $1,002.30/$1,003.10 late in New York on Tuesday.
"The dollar has come off its lows against the euro and that has seen gold weaken. Also, the fact gold has risen so fast this year means it was bound for some profit-taking," said Daniel Hynes, metals analyst at Merrill Lynch.
"I think it's just been a bit of long liquidation. It's obviously a very complicated and fluid situation at the moment."
The dollar, which hit a 13-year low against the yen and a record low against the euro on Monday, trim-med losses after news that Fannie Mae and Freddie Mac were cleared to inject more liquidity into the mortgage market.
The euro was now at $1.5637, recovering from a dip to $1.5604.
Unwinding
"There has been a large unwinding of commodities in gold especially as some market participants favour the Fed's action to date," said a London trader.
"Hedge funds have been unwinding good profit-making positions, including long euros," he added.
Lower interest rates typically reduce the attractiveness of the dollar, which in turn makes gold cheaper for holders of other currencies and often lifts bullion demand.
At its record high of $1,030.80 on Monday, gold was up 23 per cent this year from the start of 2008, as fears of inflation, hopes of further rate cuts and US financial concerns boosted bullion buying. But some analysts said the increasing threat of inflation might support gold in the longer term.
"We will be back at $1,000 soon. Dips like this will be short lived, while we have such a positive outlook for gold. All the drivers that have driven gold so high are still there," Hynes said.
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