Metals - Gold continues higher ahead of Fed meet as oil gains, dollar weakens

LONDON (Thomson Financial) - Gold rose above 800 usd per ounce as the metal benefited from a recovery in oil prices and from renewed weakness in the dollar ahead of tomorrow's rate verdict from the US Federal Reserve.


But analysts said the upside is limited ahead of tomorrow's widely expected 25 basis point rate cut by the Federal Reserve.


"It is hard to see markets moving much ahead of the FOMC decision on Tuesday evening but beyond that gold remains well within its recent 772-836 usd an ounce range," said UBS Investment Bank analyst John Reade.


While there is a risk of profit taking in gold heading into the year end, Reade added he remains positive on the metal and is waiting for an opportunity to take up long positions or bets on price rises.


At 3.29 pm, spot gold was trading at 808.60 usd per ounce, up from 794.40 usd in late New York trade on Friday.


The dollar turned lower against the euro, giving back small gains seen in Asian trading hours when investors were scaling back expectations over the magnitude of tomorrow's rate cut.


Earlier last week, many players were betting the Fed would cut rates by 50 basis points, but last Friday's better-than-expected payrolls report indicated a cut of that magnitude might not be necessary.


All the same however, analysts say a rate cut of any size will be good for gold over the longer term as it weakens the dollar and boosts the attractiveness of the precious metal as an alternative asset.


Looking into the year end, however, TheBullionDesk.com analyst James Moore said he believes any rallies in gold are likely to run into selling pressure as traders lock in profits before the New Year.


Gold fell to 777 usd per ounce earlier this month on end-of-year profit taking and on weakness in oil.


In November, the metal touched a 28-year high of 845 usd per ounce, just below the all-time record of 850 usd on record high oil prices, record weakness in the dollar and uncertainty in the broader financial markets.


This uncertainty remains for now, with markets still very jittery about the fall-out from the summer's sub-prime housing and credit crisis. Consequently, the outlook for gold is positive in the longer term.


Gold usually benefits from economic turmoil as it is seen as a safe haven asset.


Among other precious metals, platinum was up 1,461 usd per ounce against 1,458 usd yesterday, while sister metal palladium dipped to 342 usd per ounce from 343 usd.


Moore said platinum could easily eclipse last month's all-time record high of 1,489.50 usd per ounce on continuing "fundamental imbalances and market tightness".


Silver was trading at 14.66 usd per ounce against 14.34 usd.