Gold Gains for Third Day in Asia as Dollar Falls After Rate Cut

By Glenys Sim and Feiwen Rong

Oct. 30 (Bloomberg) -- Gold climbed for a third day in Asia as the dollar dropped against the euro, boosting the appeal of the metal as an alternative investment, after the Federal Reserve cut interest rates to match a half-century low.

Bullion also gained after commodity prices yesterday posted the biggest surge in five decades on speculation reduced borrowing costs in the U.S. and China may help spur a recovery in raw material demand.

``A significantly weaker dollar is certainly adding to gold's gains today,'' Darren Heathcote, head of trading at Investec Bank Ltd., said by phone from Sydney. ``We're seeing a bit of stability coming into the stock markets and that's helping sentiment in commodities.''

Gold for immediate delivery rose as much 2.1 percent to $770.93 an ounce, extending yesterday's 1.1 percent gain. It stood at $769.60 at 1:20 p.m. in Singapore. Silver for immediate delivery was up 3.6 at $10.2288 an ounce.

The ICE futures exchange's U.S. Dollar Index, which tracks the greenback against six trading partners, fell for a second day, after the rate cut and ahead of a report that may show the world's biggest economy contracted the most since 2001.

``I don't think we're out of the woods yet,'' said Heathcote. ``There's still potential for problems in the financial system and a lot of systemic risk to be ironed out.''

Asian stocks rose after China, Taiwan and the U.S. cut interest rates to alleviate a credit freeze and boost growth. The MSCI Asia Pacific Index jumped 7.8 percent to 87.03 as of 1:20 p.m. in Singapore, extending yesterday's 3.8 percent rise. The Reuters/Jefferies CRB Index of 19 raw materials yesterday jumped 5.9 percent, the most since at least 1956.

Oil Jumps

Crude oil rallied to more than $70 a barrel for the first time since Oct. 22. Futures are set for the biggest two-day gain in five weeks amid signs that central bank interest-rate cuts may help stimulate fuel demand. Gold often tracks crude oil as investors tend to buy bullion when raw material prices are rising.

``The flashing lights'' that investors are seeing ahead ``are the lights of inflation and currency depreciation'', said Jeffrey Nichols, managing director at consultants American Precious Metals Advisors, in a report late yesterday.

Other precious metals including silver rallied more than bullion as investors ``judged these metals to be oversold relative to gold,'' said Anne-Laure Tremblay, analyst at BNP Paribas in a report dated yesterday.

Gold for December delivery rose 2.1 percent to $769.80 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange, and gold for October delivery in Tokyo added 4.3 percent to 2,436 yen a gram ($771 ounce).

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