Gold prices surged on Wednesday as the dollar fell sharply in response to the Federal Reserve’s decision on Tuesday to cut the main US policy interest rate to a historic low in a range between zero and 0.25 per cent.

Gold rose 1.6 per cent to $870 a troy ounce, moving between a low of $848.50 and a peak of $881.20, the highest level since October 10 when bullion touched $931.

Suki Cooper of Barclays Capital said the outlook for gold prices was being influenced by counterbalancing factors. Ms Cooper said additional safe-haven buying and an increase in physical demand for jewellery and investment would support prices, but a need by funds to liquidate positions in the gold market to meet margin calls elsewhere could limit gains in the near-term.

Oil markets reacted coolly to Opec’s decision to implement the largest supply cut in the cartel’s history with an agreement to reduce production by 2.2m barrels a day.

Crude prices were choppy after the news broke but later moved sharply lower. Nymex January West Texas Intermediate, which expires on Friday, settled $3.54 lower at $40.06 after diving below the $40 level to a four-year low at $39.88. There is already significantly more open interest (active positions) in the February WTI contract which becomes the benchmark next week, down $1.66 to $45.04 a barrel, after hitting a low of $44.44.

ICE February Brent lost 97 cents at $45.53 a barrel.

The US government criticised Opec’s decision to cut production as “short sighted” and the White House said it was not clear the actions would be effective given the shift in global demand and the ability of the cartel’s members to meet the new targets.

US weekly inventories data were released on Wednesday prior to the Opec announcement. Hussein Allidina, commodity strategist at Morgan Stanley said the data was bearish but also provided a “flicker of life” in demand.

Crude stocks rose 500,000 barrels, above the consensus forecast for an increase of 300,000 barrels.

Traders noted a huge increase of 4.7m barrels for crude stocks at Cushing, Oklahoma, the delivery point for WTI, and said this reflected oil companies moving oil into storage because forward prices are significantly higher than spot prices.

Petrol inventories rose 1.3m barrels, matching the consensus forecast for an increase of 1.4m barrels. Nymex January RBOB gasoline inched 0.7 cents higher to $1.0470 a gallon.

Distillate stocks (including heating oil) increased 2.9m barrels, above the consensus forecast for a rise of 1.3m barrels.

Nymex January heating oil increased 2.3 cents at $1.4829 a gallon.

Credit Suisse dismissed market rumours that it would follow UBS, which decided to exit parts of its commodity markets businesses this year. Credit Suisse said in an internal e-mail it was “committed to building a top-tier global commodities business in the coming years”, and it set out plans to strengthen its alliance with Glencore, the Swiss commodities trader. Credit Suisse will fully integrate its US natural gas business in its alliance with Glencore.

Plans announced by Glencore on Tuesday to buy back some of its bonds helped trim the cost of insuring its debt against default with premiums on its five-year credit default swaps dropping to 2,795 basis points on Wednesday from a record above 3,100bp last week.

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