Gold Up from 3-Month Low on Fed and Weaker Dollar

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"We could be in for a pretty volatile period over the next couple of months," said David Moore, an analyst with Commonwealth Bank of Australia in Sydney. "I can sort of see a situation where perceptions of the U.S. economy remain fairly changeable in the next couple of months. In that situation, we're likely to see the U.S. dollar remain vulnerable."

Gold jumped almost 2 percent on Thursday on a softer dollar, regaining its appeal as an alternative investment after the U.S. Federal Reserve trimmed interest rates but left the outlook for more cuts unclear.

Gold hit a high of $881.30 an ounce with the help of purchases from speculators in Japan before dipping to $875.70/876.70 an ounce. This was still higher than $864.65/866.05 late in New York and was off a three-month low of $862.30 hit on Wednesday...

In theory, lower rates boost gold's appeal as an alternative investment to stocks and bonds. Dealers expected volatile days ahead after a drop in gold exchange-traded funds holdings in the world's largest ETF, StreetTRACKS Gold Shares NYS, suggested investors interest was declining. "The outlook, I think, still depends very much on what happens with the U.S. dollar. We could be in for a pretty volatile period over the next couple of months," said David Moore, an analyst with Commonwealth Bank of Australia in Sydney.

"I can sort of see a situation where perceptions of the U.S. economy remain fairly changeable in the next couple of months. In that situation, we're likely to see the U.S. dollar remain vulnerable."

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