"The announcement of the interest rate cut shocked the market and people ran to cover their short positions," one trader said. The prospect that lower rates will revive growth should benefit gold because of the perception of reinflationary pressures, a Singapore trader said. Inflation is seen as positive for gold. In addition, hedge funds, which shifted from holding short positions in gold to holding long positions, may buy more gold, the trader said. He noted the cost of holding long positions in gold is reduced after the rate cut. "With the rate cut I am very bullishfor gold," he said. But traders cautioned the market may drift down on profit-taking. The premium for gold bars in Hong Kong and in Singapore was at par with London prices, traders said. Previously kilobars in Hong Kong sold at a 50 US cent discount to the London price because of weak demand and an inflow of scrap gold from all parts of Asia, traders said. But dishoarding, or selling of physical gold, has stopped in Indonesia and elsewhere, with a partial recovery of weak currencies in Asia, traders said. Japanese demand for gold also improved as the yen strengthened against the dollar, a trend that should be reinforced by the latest reduction in US interest rates.

"By year end, demand may be better," a trader said. Another possible help for demand in Hong Kong was the increase in China's official gold price this week. The change brought the domestic price nearer to the international price and discourages gold from being moved to Hong Kong where the price has been higher, a trader said. "Some people weretalking about selling from China into Hong Kong. Before they raised the official gold price, gold was cheaper in China," he said.