Gold drops 1% following US sharemarket rise

The pledge by the US government to pump $700 billion into a rescue fund has meant that gold has lost some of its appeal as an alternative investment.

Spot gold was trading at $US867.80 an ounce, down $US4.40 or $US0.50 percent from New York's notional close on Friday, having hit an intraday low of $US861.40 an ounce.

''I think everyone is still going to focus on what the US is going to do about the financial turmoil. The markets should be focusing more on the equity markets after the strong rebound in the U.S. equity markets,'' said Adrian Koh, analyst at Phillip Futures in Singapore.

''Gold will probably consolidate around these regions for a while after the huge move last week. For the near-term, the $US900-$US905 regions will provide resistance to further upside while the $US845 regions provide strong support,'' he said.

Gold rallied to a six-week high above $US900 on Thursday due to fears the financial crisis had not yet run its course, and bullion also benefited from a wave of risk aversion after US investment bank Lehman Brothers filed for bankruptcy.

Profit taking erased some of the gains and gold was below a record high of $US1030.80 hit in March.

Hopes the US rescue plan would restore stability in the financial market also helped oil extend last week's rally. In theory, high oil prices lift gold's appeal as a hedge against inflation.

COMEX gold futures advanced after settling down nearly 4 percent on Friday. The most active December contract was trading up 0.82% at $US871.80 from the New York settlement.

Platinum was trading at $US1146 per ounce, up $US11.50 or 1.01% from Friday's notional close.

''I think platinum and palladium remains rather weighed cause I think they are more tied to the financial turmoil and slowing demands,'' said Koh of Phillip Futures.

Platinum tumbled to a 2-1/2-year low at $US1042 an ounce last week as slowing US economy and poor car sales forced automakers to slash their production plans. Platinum is mainly used in autocatalysts.

Author: Jo Amey