Fed cut hopes fuel Asian gold

Gold gained in Asia on speculation that the Federal Reserve may cut the US benchmark interest rate at a meeting tomorrow. Silver was little changed.

Reduced borrowing costs may erode the dollar and spark demand for precious metals as an alternative investment.

The US Dollar Index, which measures the currency's performance against six of its biggest trading partners, fell to 74.48 on November 23, the lowest since it began trading in 1973. Gold has gained 25 per cent this year, heading for the seventh straight annual gain.

"Physical demand for spot gold may rise approaching the year-end with the long-term uptrend in the bullion market remaining intact,'' China's Jingyi Futures Co said in a report to clients on Monday.

Bullion gained $3.45, or 0.4 per cent, to $798.25 an ounce at 3:27 pm Singapore time. The precious metal traded as low as $791.85 in New York on December 7. Silver was little changed at $14.38 an ounce.

Bets on a 25 basis points Fed cut tomorrow increased to 74 per cent from 62 per cent a week ago after the Labor Department in Washington said payrolls rose by 94,000 in November. Economists had forecast a rise of 80,000, according to the median of 82 estimates in a Bloomberg survey.

Eleven of 22 traders, investors and analysts surveyed by Bloomberg from Mumbai to New York on December 6 and December 7 advised buying gold, which rose 1.4 per cent last week to $800.20 an ounce on the Comex division of the New York Mercantile Exchange. Four said to sell, and seven were neutral.

"The gold market is not going to see any big move before the Fed's meeting,'' Ronald Leung, director at Lee Cheong Gold Dealers (Hong Kong), said by phone on Monday.

"Investors, mostly funds, have already left the market before the year-end to prevent big price gyrations from affecting their bonuses.''

A drop in crude oil prices in New York may also have reduced buying interest in bullion. Oil was at $87.62 a barrel at 3:29 pm in Singapore, falling for a second day on speculation the slower US economic growth and rising fuel stockpiles may limit demand. Gold and oil usually move in tandem as investors tend to buy gold when the energy price is rising.

Gold might trade in a range between $780 and $810 an ounce as the end of the year approaches, Leung said.

The February-delivery gold on the Comex division of the New York Mercantile Exchange rose 0.4 per cent to $803.30 an ounce at 3:30 pm Singapore time.

In Japan, the most active gold futures contract gained 0.4 per cent to close at 2,891 yen a gram ($806 an ounce) on the Tokyo Commodity Exchange.