Gold Declines as Dollar Gains on European Interest-Rate Cuts

By Feiwen Rong

Nov. 7 (Bloomberg) -- Gold fell for third day in Asia as lower borrowing costs in Europe and the U.K. boosted the dollar, eroding the appeal of the metal as an alternative investment. Silver also declined.

The dollar advanced for the second day against a weighted basket of six major currencies after the Bank of England and the European Central Bank slashed benchmark interest rates to stimulate slumping economies. The metal last month dropped 17 percent as the dollar climbed 11 percent against the euro.

Gold fell on both dollar gains after rate cuts in Europe and ``on fresh global recession worries,'' Darren Heathcote, head of trading at Investec Bank Ltd., said in a report today.

Bullion for immediate delivery fell 0.6 percent to $728.45 an ounce at 9:19 a.m. in Singapore. Silver for immediate delivery was down 0.2 percent at $9.9613 an ounce.

The ECB reduced its main refinancing rate by 50 basis points to 3.25 percent. The BOE slashed its key rate by 1.5 percentage points to 3 percent. Switzerland's central bank lowered its benchmark rate to 2 percent from 2.5 percent.

The U.S. federal funds rate is at 1 percent, down from 5.25 percent in September 2007. ECB President Jean-Claude Trichet said today that more rate cuts are possible.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has remained unchanged at 749.2 metric tons since Oct. 27. The fund reached a record 770.6 tons on Oct. 10.

December-delivery gold fell 0.7 percent at $727.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for October delivery in Tokyo declined 3.4 percent at 2,263 yen a gram ($727 an ounce) at 10:22 a.m. local time.

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