Gold falls nearly 5%

As the U.S. Senate's approval of a revised $700 billion bailout plan boosted the dollar, gold futures fell nearly 5% to their lowest level in two weeks, reducing dollar-denominated prices of the precious metal.

Gold's losses followed broad declines in precious metals and other commodities. Silver plunged 13%. Gold for December delivery lost $43, or 4.8%, to end at $844.30 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price since Sept. 17.

"There was some relief buying in the dollar when the Senate passed the latest proposal, which has forced gold lower," said Peter Grant, a senior metals analyst at USAGOLD-Centennial Precious Metals.

In other precious metals, December silver tumbled $1.65 to end at $11.12 an ounce. Platinum for October delivery lost $50.10, or 4.9%, to $979.60 an ounce, falling below the $1,000 level for the first time since early 2006. December palladium slid $7.75, or 3.7%, to $203.20 an ounce.

Commodities moved broadly lower Thursday, with the benchmark crude-oil contract down nearly 4% to below $95 a barrel.

Just two days after the House of Representatives rejected the original package, the Senate approved the revised plan to stabilize the financial industry. By a vote of 74-25, senators authorized the Treasury Secretary to buy bad assets from companies' books, allowed the Federal Deposit Insurance Corp. to raise its deposit-insurance cap to $250,000 from $100,000, extended several tax breaks and required government agencies to modify troubled mortgages.

The measure now moves to the House, where a vote is expected on Friday. See full story.

"The passage of the U.S. financial rescue package in the Senate did contribute to the firmer dollar tone," said Marc Chandler, a currency analyst at Brown Brothers Harriman.

The dollar rose against the euro, with the European currency standing at $1.3829, down from $1.4007 in late Wednesday trading. The greenback was also higher against the British pound. The dollar index which tracks the value of the greenback against other major currencies, rose 1.2%.

A rising dollar pressures gold prices as it reduces the metal's appeal as an investment alternative.

Some analysts said that in the long term, the government plan is bullish to gold prices as it could pressure the dollar.

"The long-term implications of the proposal, if it is passed, are extremely negative for the dollar and therefore extremely positive for gold," said Grant.

Also on Thursday, the European Central Bank Thursday left its key lending rate unchanged at 4.25% despite a rapidly deteriorating economic outlook and rising turmoil in the European banking sector.

Gold prices have been very volatile recently as investors awaited Congress's decision on the rescue plan.

"Speculation about the bailout is the main short-term driving force," said Ed Bugos, editor of Gold & Options Trader, a newsletter published by Agora Financial. "Every time the market thinks it will go through, gold falls, and vice versa when the market thinks it will not be passed."

Some analysts said that even if the plan is passed, the U.S. economy is still going to succumb to a recession.

"Bailout or no bailout, gold is going higher in price as no matter what size the bailout is, it will not prevent a probable recession in the U.S.," said Mark O'Byrne, executive director at Gold & Silver Investments.

Investors have been snapped up gold coins as a safe haven as the financial crisis on Wall Street deepened.

Author: Jo Amey