Gold regains strength, bides time ahead of Fed

Gold bars are displayed at South Africa's Rand Refinery in Germiston in this May 30, 2006 file photo. Gold bounced on bargain hunting on Monday after a drop of around 1 percent last week, but the metal was likely to trade in a tight range ahead of a

By Lewa Pardomuan

SINGAPORE (Reuters) - Gold bounced on bargain hunting on Monday after a drop of around 1 percent last week, but the metal was likely to trade in a tight range ahead of a decision by the U.S. Federal Reserve on interest rates.

Spot gold rose to $796.10/796.90 an ounce from $794.90/795.70 late in New York on Friday, when it fell more than $8 an ounce on the back of a weaker crude oil.

Gold has been stuck in a tight range in recent days ahead of the Fed rate decision on Tuesday, and some investors were cautious after data showing steady U.S. job growth cooled expectations of a large cut in key interest rates.

"Gold is consolidating within the range of $785 to $805.

Market participants are just waiting for the rate cut announcement before taking any actions," said William Kwan, a dealer at Phillip Futures in Singapore.

"When the payroll is better, they may not cut so aggressively. However any rate cut will be good for the precious market. It will add excess liquidity," he said.

U.S. bank JPMorgan said on Friday precious metals could rally in 2008 as the U.S. dollar falls and supply flattens, ranking the sector the strongest among all commodities for next year.

The Fed is seen cutting its target for overnight rates by at least a quarter-point to 4.25 percent this week, but interest rate futures have cut the implied chance of a half-point cut to about 25 percent from near 60 percent last week.

Friday's November payrolls data showed a 94,000 increase in employment and the jobless rate holding at 4.7 percent, suggesting the economy was not falling off a cliff.

The euro was steady at $1.4653, hovering above a three-week low of $1.4525 hit last week.

"As long as gold manages to sustain above $790, buying could creep in on all dips, preventing a major slide. However, it needs to clear $810 for the rally to sustain," said Pradeep Unni, an analyst at Vision Commodities in Dubai.

"Immediate resistance is around $808 and $815," he said.

Expectations of further rate cuts in December, record-high crude oil and uncertainty in the U.S. credit market propelled gold to above $845 last month -- a whisker away from the record peak of $850 hit in 1980.

But trading has been volatile since, with investors keen to book profits ahead of the year-end and declines in oil ignited selling from speculators. Gold tumbled to $777 an ounce – the lowest since Nov. 20 -- in early December.

U.S. crude futures extended last week's losses, hovering around $87 a barrel on Monday, on expectations that a modest Fed interest rate cut would limit pressure on the U.S. dollar.

COMEX gold futures rose in Asia after falling in New York on Friday. Most active February contract was trading up $1.8 an ounce at $802.00 an ounce.

The most active October 2008 contract ended the morning session 1 yen per gram higher at 2,882 yen.

Platinum rose to $1,460/1,465 an ounce from $1,455/1,460 from late New York levels. Palladium fell to $343.00/347.00 from $345.50/348.50 an ounce in New York.

Silver was unchanged at $14.33/14.38 an ounce.