Gold Falls as Prospect of Bailout Plan Reduces Crisis Concern

By Feiwen Rong

Sept. 29 (Bloomberg) -- Gold fell in Asia as the prospect of a U.S. government-led $700 billion bank-rescue package this week eased investor concern over the global credit market crisis.

President George W. Bush and congressional leaders said they reached an agreement on a package to revive credit markets. The House may consider the plan today and the Senate will vote by Oct. 1, lawmakers said. The crisis has led to the collapse of Lehman Brothers Holdings Inc. and Washington Mutual Inc.

``In the short-term this bailout plan would probably lead a lot of people to think that the worst is over in the credit market and this is probably negative for the gold prices in the short-term,'' Greg Canavan, Sydney-based analyst at Fat Prophets Management Ltd., said today by phone.

Gold for immediate delivery fell 0.4 percent to $875.23 an ounce at 2:05 p.m. in Singapore, after rising for the past two weeks. Silver for immediate delivery declined 0.7 percent to $13.205 an ounce.

The dollar rose to a one-week high of $1.4436 against the euro and last traded at $1.4461 in Singapore.

``After the initial euphoria, we will still be looking at a slowing U.S. economy,'' Canavan said. ``The ramifications of U.S. consumption on the rest of the world will lead to accommodative fiscal and monetary policies around the world, which should be bullish for gold in the long term,'' he said.

Exchange-Traded Fund

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, gained 18 percent since Sept. 15 after the bankruptcy of investment bank Lehman Brothers Holdings Inc. and the U.S. takeover of insurer American International Group Inc., and mortgage-financiers Fannie Mae and Freddie Mac.

``I still think gold is an interesting cash investment over the longer term because if someone tells me the Fed is going to cut interest rate to zero, which is quite possible by our money printer, then gold becomes very attractive,'' said Marc Faber, managing director of Marc Faber Ltd., in an interview with Bloomberg Television on Sept. 25.

``The current value of the world's total country central bank gold reserves amounts to $750 billion,'' Stephen Briggs, analyst at RBS Global Banking & Markets in London, said in a report on Sept. 26. ``The 8,134 tons that the U.S. holds in its gold reserves are worth $230 billion. Not that we are suggesting they should sell.''

December-delivery gold fell 0.9 percent to $880.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for August delivery jumped 0.8 percent to 2,989 yen a gram ($874 an ounce) on the Tokyo Commodity Exchange at 3:07 p.m. local time.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net