Taking Cues From Crude, Gold Closes Higher After Monday's Late Pullback

March 18, 2008

U.S. gold futures finished slightly higher Tuesday on the back of inflation fears spurred by a bounce in crude oil prices, after heavy liquidation erased sharp initial gains that took the market to record highs on Monday.

Adam Hewison, president of INO.com in Annapolis, Md., said he would not be surprised to see some backing and filling in gold after the Monday pullback.

"Psychologically, the perception of the market has been somewhat dampened with the action yesterday," Hewison said. "If we close lower than we did last Friday, then certainly there are going to be a lot of question marks since we might have seen a top on the gold."

The active gold contract for April delivery on the Comex division of the New York Mercantile Exchange settled up $1.70 at $1,004.30 an ounce. It traded between a session high of $1,004.30 and a bottom of $994.80.
On Monday, panic buying amid turmoil in global financial markets due to a fire sale of Bear Stearns initially sent gold futures to a record high of $1,033.90. However, the April contract finished at $1,002.60 an ounce due to full-scale selling late in the session.

Hewison said that $960 an ounce would be a major support area for gold. But he expects gold to quite easily pull back below $1,000.

Rising crude oil prices also boosted gold, which is used as a hedge against inflation. U.S.
crude futures settled $3.74 higher at $109.42 a barrel after falling nearly $7 on Monday.

Comex estimated final gold futures volume at 161,956 contracts and gold options at 19,482 lots. Total turnover in Chicago Board of Trade electronic 100-ounce gold futures was 20,513 lots at 3:02 p.m.

After Tuesday's pit trade session, the Federal Reserve slashed a key U.S. interest rate by three-quarters of a percentage point, a substantial cut but smaller than many in financial markets had expected, as part of an effort to hold off a deep recession and financial meltdown.

"The committee expects inflation to moderate in coming quarters, reflecting a projected leveling out of energy and other commodity prices and an easing of pressures on resource utilization," the U.S. central bank said.
Comex May silver closed down 34.0 cents, or 1.7%, to $19.960 an ounce. It traded between a bottom of $19.850 and a high of $20.510.

The Nymex platinum contract for April delivery dropped $5.40 to close at 1,968.00 an ounce.

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