Gold gains as dollar falls on Fed's interest rate cut

Gold on Tuesday gained boosted by an emergency cut in interest rates that reduced the value of the dollar.

The Federal Reserve earlier in the day cut its benchmark interest rate 0.75 percentage point to 3.5 percent following a surge in global equity markets amid concerns that the declining U.S. economy will reduce the growth rates of other nations.

Gold futures for February delivery increased $8, or 0.9 percent, to $889.70 an ounce at noon on the Comex division of the New York Mercantile Exchange after an earlier price decline to as low as $849.50.

Gold for immediate delivery increased $24.22, or 2.8 percent, to $889.22 but the price declined 2.1 percent on Monday after a public holiday closure, of Comex.

The rate cut today was the highest single reduction since the Fed started using the benchmark as the principal tool to control monetary policy in 1990, causing the dollar to fall 1.3 percent against the euro.

Gold futures earlier in the day fell 3.7 percent as investors sold the metal to cover losses in equity markets.

Silver futures for March delivery dropped 14 cents, or 0.9 percent, to $16.075 an ounce after an earlier 5.9 percent price decline.