Gold Falls as Steps to Ease Financial Turmoil Cuts Haven Demand

By Feiwen Rong and Glenys Sim

Sept. 19 (Bloomberg) -- Gold declined in Asia on speculation the metal's rally this week had been excessive after governments took steps to support financial companies to prevent the global financial crisis from spreading.

Bullion is still headed for its biggest weekly gain in nine years as the worst crisis facing markets since the 1920s fueled risk aversion among investors. Treasury and Federal Reserve officials will work over the weekend to clear illiquid mortgage- related assets from bank balance sheets and refinance them.

``The gold price has been extremely volatile in recent weeks, being pushed from pillar to post by the dramatic movements in foreign exchange, financial and equity markets,'' David Moore, commodity strategist at Commonwealth Bank of Australia, said in a weekly report today.

Gold for immediate delivery fell 0.3 percent to $850.57 an ounce by 2:23 p.m. in Singapore. Bullion has rallied more than 10 percent this week, the most since October 1999. Silver for immediate delivery advanced 1.5 percent to $12.125 an ounce.

The crisis, sparked by record homeowner defaults, swept Lehman Brothers Holdings Inc. into bankruptcy three days ago and prompted government takeovers of Fannie Mae, Freddie Mac and American International Group Inc. this month.

Central banks in the U.S., Europe and Japan injected $247 billion into the global financial system and the U.S. started plans to recapitalize troubled lenders.

``Over the course of the coming year, we expect the gold price to be a function of the competing influences of recovering jewelery gold consumption versus diminished investor interest in gold,'' said Moore.

December-delivery gold fell 5 percent to $851.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 2:30 p.m. in Singapore. The contract gained 15 percent in the past two days, the most since U.S. futures debuted in 1975.

Gold for August delivery traded in Tokyo jumped 3.1 percent to 2,894 yen a gram ($842 an ounce), while Shanghai gold for December delivery added 2.3 percent to 187 yuan a gram ($851 an ounce).

To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net