US gold bounces on inflation fears, safe haven bid

NEW YORK, Jan 22 (Reuters) - U.S. gold futures turned 1
percent higher in choppy trade on Tuesday after heavy initial
losses, as an emergency rate cut by the Federal Reserve and
safe-haven buying offset initial liquidation by commodity funds
after a sell-off in global stocks.

By midmorning, U.S. stocks also sharply narrowed their
losses, extending support to the precious metals market.

Gold should be supported by inflation concern due to
possible further rate cuts, and as investors seek safety amid
volatile equities markets, market-watchers said.

The Federal Reserve on Tuesday slashed benchmark interest
rates by a hefty three-quarters of a percentage point, the
biggest rate cut in more than 23 years, in an emergency bid to
boost the U.S. economy some fear is on the verge of recession.

"Normally, gold and silver would be helped (after the rate
cut), but funds needing cash are selling liquid metals," said
George Gero, vice president of RBC Capital Markets Global
Futures in New York.

At 10:45 a.m. EST (1545 GMT), the active gold contract for
February delivery at the COMEX division of the New York
Mercantile Exchange GCG8 was up $10.20 or 1.2 percent at
$891.90 an ounce. It peaked at $893.00.

In the overnight sessions, February futures hit a
three-week low of $849.50, as investors exited the precious
metals market and opted for cash following the global stock
sell-off rout which began on Monday.

The U.S. gold futures market was shut on Monday due to the
Martin Luther King Jr Day holiday.

The Fed took the key federal funds rate, which governs
overnight lending between banks, down to 3.5 percent, its
lowest level since September 2005. The Fed also lowered the
discount rate it charges on direct loans to banks to 4 percent.

Fed policy-makers are scheduled to meet on Jan. 29-30 and,
in the wake of the central bank's bold rate cut on Tuesday,
financial markets were expecting the Fed to lower borrowing
costs again by at least a quarter of a point. [ID:nN22181874]

Gold prices should recover as the precious metal's appeal as
a hedge against inflation was boosted, as the Fed is now more
concerned with the stock markets than keeping inflation in
check, Gero said.

Analysts said that increased volatility in the world
financial markets and a possible recession in the U.S. economy
could boost flight-to-quality buying in gold.

"I take the slightly more downbeat view, they (Fed) must
know of something going on and things are a lot worse than even
the worst bears had thought, that the economy really is in
recession going from bad to worse," said Robin Bhar, UBS metals
analyst in London.

"This smacks of panic and desperation, but is obviously
bullish for gold as interest rate cuts make gold more
attractive," Bhar said.

Spot gold XAU= was quoted at $892.10/892.80 an ounce,
compared with Friday's New York close of $881.90/882.60. London
bullion dealers fixed the afternoon spot reference price at
$875.

COMEX March silver SIH8 was down 7.0 cents at $16.145 an
ounce, trading from $15.255 to $16.295.

Spot silver XAG= was at $16.06/16.09 versus $16.14/16.19
late Friday. London silver was fixed at $15.57.

April platinum PLJ8 dropped $15.50 or 1 percent to
$1,550.00 an ounce. Spot platinum XPT= was quoted at
$1,544/$1,549.

March palladium PAH8 fell $8.60 or 2.3 percent to $366.45
an ounce and spot palladium XPD= fetched $362.50/$367.50
(Reporting by Frank Tang, editing by Matthew Lewis)