NEW YORK/LONDON (Reuters) - Gold ended nearly 2 percent higher on Monday as the dollar slipped to two-month lows versus the euro, with bullion holding onto gains in spite of a fizzled oil rally and widespread selling in the equities market.
"I think deleveraging has and will continue to lessen. Gold will see significantly less deleveraging in the next six months because a lot of that has already been done, and there will be less redemption pressure from funds," said Bill O'Neill, managing partner of LOGIC Advisors.
Spot gold was last at $833.15 an ounce at 3:10 p.m. EST, up 1.6 percent from Friday's close of $819.90.
Gold was held below $830 an ounce for much of the day by technical resistance, but stops were triggered as the rising euro pushed prices higher, leading to a spike to a two-month high of $842.15 an ounce.
Traders are awaiting an announcement on interest rates from the U.S. Federal Reserve on Tuesday, which will have a significant impact on the foreign exchange market, and consequently on gold.
U.S. gold futures for February delivery settled up $16.00, or 2.0 percent, to $836.50 an ounce on the COMEX division of the New York Mercantile Exchange.
The U.S. dollar tumbled to two-month lows against the euro and a basket of currencies on speculation the Federal Reserve will cut interest rates to near zero this week, further eroding the greenback's yield appeal.
"On the currency side, the high yield has been dragging euro higher," said Pradeep Unni, a senior analyst at Richcomm Global Services.
"If the Fed slashes rates again, the yield differentials between the euro zone and Fed would widen further."
Gold tends to track the euro/dollar exchange rate closely, as it is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it.
The Federal Reserve is widely seen cutting rates by at least 50 basis points on Tuesday after the Federal Open Market Committee's two-day policy meeting concludes.
"Everyone is banking on a lower interest rate in the U.S.," said Afshin Nabavi, head of trading at MKS Finance in Geneva. "If the dollar continues to lose value, of course it will benefit gold."
Oil, the other key external driver of gold, initially rose nearly 7 percent to $50 a barrel. Crude prices, however, settled nearly $2 or 4 percent lower below $45 per barrel on overwhelming economic worries.
EQUITIES SLIP
U.S. stocks dropped, roiled by worries about how big a bite the global financial crisis has taken out of banks' profits and signs of more economic weakness. .N
