Gold Jumps 3% as Fed Floods US Banks with Cash After Lehman Collapse; Base Metals, Crude Oil & Foreign Stocks Fall

From Chris Mullen at GoldSeek.com...

Gold jumped $20 an ounce to $784.60 in early Asian trade on Monday in response to the weekend collapse of Lehman Brothers and the sale of Merrill Lynch in New York.

Gold Prices then slipped back to see just a $2.60 gain at $763.85 near the New York open, while European stock markets stood more than 4% lower. But the metal then rallied back higher into the close and ended back near its early highs with a gain of 2.89%.

The US Dollar index fell and Treasury bonds rose substantially as the Dow, Nasdaq, and S&P fell roughly 2% at the open and fell even further in afternoon trade after Lehman Brothers filed for bankruptcy protection, closing with the worst one-day losses since 9/11.

Bank of America also confirmed its $50bn agreement to buy Merrill Lynch in stock, paying above market prices. Shares in the world's largest insurance group, AIG, meantime fell about 60% as it admitted serious troubles raising cash.

The Federal Reserve flooded the most money into the US banking system since trying to calm the markets after the Sept. 11th attacks of 2001.

The New York Fed added $70 billion in overnight repurchase agreements, known as repos, and in a significant development widened the range of collateral it accepts from cash-hungry banks to include stock-market equities

Silver rose to $11.21 and fell to $10.38 before it also rallied back higher, along with Gold, into the close and ended with a gain of 2.98%.

Both metals continued to rise in after-hours access trade, with Gold Bullion hitting a new high for the day above $788 per ounce – a gain of 3.0% from Friday's finish.

The Gold Price in Euros rose to €552 an ounce, platinum lost $33 to $1171.50, and copper lost a few cents to about $3.18.

Gold Mining and silver equities traded just slightly lower in morning action, but they then fell off further in afternoon trade along with the major indices and ended with over 4% losses.

Crude oil prices meantime fell on worries over slowing demand plus healthy supply operations after Hurricane Ike did not do much damage to Texan installations.

Monday's data releases showed US industrial production shrinking by 1.1% in August from July, while Capacity Utilization also shrank and the NY Empire State index of manufacturing activity sank to a reading of -7.4 from last month's +1.4.

Tuesday at 13:30 GMT brings US Consumer Price data for August – expected to show a month-on-month fall of 0.1% – with Core CPI (excluding volatile oil and food prices) expected 0.2% higher.

Then comes the Net Foreign Purchases report for July, before 19:15 GMT brings the crucial Federal Reserve policy statement, now with a very real possibility of a cut in interest rates by at least 25 basis points in order to try and help combat the current financial crisis.

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