As Markets Make Strong Recovery, Gold Dives Back from a $900 Peak

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Traders said investors from emerging markets, including Russia and India, have been selling U.S. Treasuries amid fears of more trouble for the U.S. financial sector and have been using the proceeds from Treasuries to buy gold.

Gold edged down from highs on Friday as the dollar and equities rallied after U.S. officials scrambled to help mop up more of the toxic debt that has sunk markets and triggered a flight from risk.

Bullion initially rose in early trading on Friday after falling sharply from above $900 per ounce late the previous day, but the precious metal lost ground as traders adjusted positions ahead of the weekend after massive flight-to-quality buying boosted prices this week...

Traders said investors from emerging markets, including Russia and India, have been selling U.S. Treasuries amid fears of more trouble for the U.S. financial sector and have been using the proceeds from Treasuries to buy gold. This week, U.S. authorities bailed out insurer American International Group with an $85 billion rescue plan, Lehman Brothers collapsed and Merrill Lynch got bought. "Emerging market players hold large cash in their hands by selling Treasuries," the trader said...

"Caution still stays and flight-to-quality buying in gold is continuing," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo. "But considering the speed of the rise, we could see some technical correction, but on price dips there are plenty of demand from end-users."

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