DJ PRECIOUS METALS: NY Gold Keeps Rising Ahead Of FOMC Meeting

DJ PRECIOUS METALS: NY Gold Keeps Rising Ahead Of FOMC Meeting

By Allen Sykora

Of DOW JONES NEWSWIRES



Anticipation of a Federal Reserve rate cut and comments from former FederalReserve Chairman Alan Greenspan were both cited as catalysts Monday for gainsin the gold and silver futures, analysts said.

December gold rose $6 to $723.80 an ounce on the Comex division of the NewYork Mercantile Exchange. As pit trade was closing, the December contract atthe Chicago Board of Trade was up $5.80 to $723.50.

Comex December silver rose 19.5 cents to $12.90. As it was closing, CBOTDecember silver was up 20 cents to $12.906.

The session comes one day ahead of a much-anticipated meeting of the FederalOpen Market Committee. Gold has been rising for a few weeks now, with thedollar falling, on expectations that policy-setters will trim the federal-fundsrate - at which banks lend to each other - for the first time since 2003.Policy-setters last month trimmed the discount rate - which it charges banksthat borrow directly from the Fed - to 5.75% from 6.25%.

The higher prices in gold and silver come as traders continue to build inexpectations for a fed-funds rate cut on Tuesday, said George Gero, vicepresident with RBC Capital Markets Global Futures.

"The question is whether it will be a quarter-point or a half-point (ratecut)," he said.

Jon Nadler, analyst with Kitco Bullion Dealers, commented that "morerate-cut-expectation-fueled longs piled into the market despite warning flashesin the metals' relative strength indicators."

Shortly after the Comex gold pit closed, the October federal-funds futureswere factoring in an effective rate of 4.88%, which means the financial marketswere fully pricing in a 25-basis-point rate cut plus a 48% probabilitypolicy-setters would trim by an additional 25 basis points. The federal-fundsrate has stood at 5.25% for 15 months.

Short covering was occurring in the run-up to the meeting, said Gero,commenting that fund buying has been occurring over the last several sessions.

"Gold has been continually moving up ever since we've felt the quarter-pointcut was coming," he said. "It could be that you'll have profit-takingafterwards."

Some of gold's strength was the result of comments from former FederalReserve Chairman Alan Greenspan, reported Patrick Lafferty, Commodity TradingAdvisor with MF Global.

Greenspan has given a number of interviews in recent days in conjunction withthe publication of a book that he authored. He has indicated that inflation isa concern down the road, and investors often buy gold as an inflation hedge.

"Greenspan's comments have got to be the catalyst, although energy is up,"said Lafferty. "That's kept what was already a nice technical move alive andwell. We saw a lot of people coming in and adding to their positions."

December gold peaked at $728.90, its strongest level since July 2006. Thenext upside target for December gold is around the $735 area, Lafferty said.

Crude oil's gains were also supportive, noted Lafferty. Shortly after theComex gold pit closed, October crude oil was up $1.09 to $80.19 a barrel.

"Silver got dragged up with gold," said Gero. However, he noted, the metalcontinues to stall just ahead of resistance around the $13 area, although itpeaked at $12.98, its strongest level since Aug. 14.

Meanwhile, October platinum rose $3.40 to $1,302.60 an ounce, while Decemberpalladium gained $1.60 to $335.35 in metals that were described as more subduedthan gold.

The platinum group metals upticked modestly as gold rose, but overallactivity appeared muted, with many participants seemingly on hold ahead ofTuesday's FOMC meeting, said one desk trader.

"It's pretty quiet, as you can imagine, ahead of the Federal Open MarketCommittee meeting tomorrow," he commented.

Gero said these metals may have been held back as the market continues tomonitor labor talks at General Motors.