Gold Drops on Speculation U.S. Rescue Plan Will Placate Markets

By Pham-Duy Nguyen

Sept. 25 (Bloomberg) -- Gold futures dropped for the second time this week on speculation that a U.S. plan to ease the credit crunch will stabilize markets and reduce the appeal of the precious metal as a haven. Silver rose.

President George W. Bush said ``a long and painful'' recession is ahead if Congress doesn't move quickly to approve a $700 billion plan to rescue financial firms. Before today, gold gained 14 percent from Sept. 15, the day Lehman Brothers Holdings Inc. sought bankruptcy court protection in New York.

``If the bailout is cheered, the stock market will rally and the dollar can gain and gold could go down,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``Maybe there'll be a day or two of absolute euphoria. You could have the mother of all stock market rallies on the bailout.''

Gold futures for December delivery fell $2.60, or 0.3 percent, to $892.40 an ounce on the Comex division of the New York Mercantile Exchange. Gold reached a record $1,033.90 on March 17.

Silver futures for December delivery rose 10.5 cents, or 0.8 percent, to $13.545 an ounce.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.