Gold closed modestly lower amid choppy trading as traders mulled over the government's latest effort to the impact of the recent financial turmoil. December gold moved to $839.50, down $3.00 on the session. The metal had climbed as high as $857.40 in electronic trading.
The U.S. government will buy equity stakes in many of the nation's largest banks, President George Bush announced. In another action, the president said the FDIC will guarantee most new debt issues by insured banks. The government will use up to $250 billion of the $700 billion authorized by the financial system rescue plan in order to make the bank equity purchases.
The dollar bounced back against the euro, cutting into gold's hedge value. The greenback rebounded away from a near-term low against the European currency and also gained on the pound. Usually, gold moves in the opposite direction as the dollar.
The metal has been highly-volatile throughout this month amid the worldwide credit woes. Gold moved as high as $936.30 last week, its highest level since late July. This was still comfortably away from gold's record $1,033.90 from March 17.
On Monday, gold moved as low as $824.50, testing a four-week low. Gold prices dropped $16.50 as confidence in liquidation efforts in the U.S. and Euro reduced the need for the hedge investment. December gold moved to $842.50, down $16.50 on the session.
Oil prices turned lower on Tuesday after an early surge, further dragging down gold's hedge appeal. Light sweet crude for December delivery fell as low as $78.73 in afternoon trading. Prices hit as high as $85.28 before details of the plan were announced.
