PRECIOUS-Gold rises after Fed rate cut, but pares gains on cash hunt

K. Sathya Narayanan

(Updates prices)

* Fed slash rates for second time this year

* U.S. dollar falls from over 2-week high

* Palladium falls more than 5%

March 16 (Reuters) - Gold prices jumped in early trade on Monday after another emergency rate cut by the U.S. Federal Reserve, before paring gains as some investors sold the metal for cash amid a sell-off in equities.

Spot gold was up 0.2% at $1,532.12 per ounce by 0726

GMT, having risen as much as 2.8% earlier. The metal fell 3% on

Friday. U.S. gold futures rose 1% to $1,531.60 per

ounce. Prices rose initially due to the surprise Fed rate cut, said CMC Markets analyst Margaret Yang Yan, adding that: "The market is very indecisive and there are divergent opinions. Investors are now dumping everything. They just want cash." The Fed slashed rates back to near zero, restarted bond buying to help put a floor under a rapidly disintegrating global economy amid the escalating coronavirus pandemic.

The Fed's rate cuts and restarting of quantitative easing are positives for gold, but "we're in an unconventional time and theory might not apply in a time of high volatility and divergence," Yan said. The dollar fell from a more than two-week high and stock markets plunged after the Fed cut rates for the second time this year to soften the economic blow from the economic shock.

The benchmark U.S. 10-year Treasury yields fell, resuming its march towards an all-time low touched last week, while the

safe-haven yen rose from a two-week low against the

dollar. A widespread pandemic causing a global shutdown, emergency rate cuts and falling U.S. dollar should be "nirvana for gold," Jeffrey Halley, a senior market analyst at OANDA, said in a note. "Unfortunately, these are not normal times and the usual rules don't seem to apply anymore," he said. Generally, lower interest rates reduce the opportunity cost of holding non-yielding bullion, and weigh on the dollar, making greenback-denominated gold cheaper for investors holding other currencies. The Fed's latest cut could support gold in the medium to longer term as it suggests the economy is in a downtrend and the negative impact of coronavirus is likely to continue, said Hareesh V, head of commodity research at Geojit Financial Services. Following the Fed, New Zealand slashed rates to a record low, while European Union finance ministers plan to agree on a coordinated economic response.

In a volatile trade, palladium fell 1% to $1,788.76,having fallen more than 5% earlier. Platinum slipped 0.8%to $755.50 per ounce, while silver fell 1.5% to $14.45.

(Reporting by K. Sathya Narayanan in Bengaluru; Editing by Subhranshu Sahu, Aditya Soni)