The bank took the unusual step of cutting the discount rate by 0.25 percentage point to 5.5 per cent on Thursday - the second straight day of rate cuts. And by the time Fed Bank officials meet US government officials later this month, a further cut in interest rates is not ruled out.

The abnormal price swings witnessed over the last three days after the interest rate was cut have failed to give any direction to bullion prices. So, despite a stronger euro, bullion traders now await signals from two main events that will occur later this month: One, the sale of gold by the Bank of England scheduled to be held on January 23 (the first in the second year after the 1998 Washington agreement) and two, the next meeting towards the end of January between Fed and US government officials.

Caught unawares - the proposed cut was expected not before end-January - the vacationing bullion traders were forced to reverse their short positions on the bullion exchanges and create fresh positions after US interest rates were announced last week.

Even in domestic bullion markets, the last few days saw panic all round with traders glued to their phones trying to gauge the reasons why gold prices had fluctuated they way they did since late Thursday. The majority of them, like their counterparts in international markets, were of the opinion that with the firming up of the euro, gold prices will surely reign firm. But instead, these were seen sliding with the fluctuations in the US dollar against the euro.

After their abnormal swings on Thursday and Friday, gold prices are said to be currently at the same levels as they were towards the end of last year - at $267-68 per troy oz. On November 30, they were quoted at $267.70 and on January 4, it's quoted at $268.

In the absence of the US interest rate cut, gold prices were expected to climb but have slid since Thursday and are now trying to wriggle out of a weaker US dollar and a stronger euro. And as is commonly known in bullion markets, a strong euro usually means stronger gold prices.

The prospects of firmness in gold prices stem more from the euro hitting fresh 10-month highs (against the Japanese yen) and a six-month high against the US dollar on Friday because there is growing optimism about the outlook for growth in Europe compared to Japan and the United States. In the days ahead, squeezed as they would be between a weaker US dollar and a firming euro, gold prices will wait till the holidaying traders return by end of the next week. Meanwhile, the tug-of-war between forex dealers too hopefully might subside, giving direction for the yellow metal.