MW: Gold rallies anew on inflation fears amid rate cuts
By Moming Zhou, MarketWatch
NEW YORK (MarketWatch) -- Gold futures extended its recent rally by nearly $40 Wednesday as investors sought refuge against inflation after major central banks around the world cut interest rates in concert.
The Federal Reserve, European Central Bank and four other central banks lowered interest rates in a coordinated effort to combat world's deepening financial turmoil.
"Coordinated central bank aggressive interest rate cuts should lead to gold surging in value in the coming months" as "currency devaluations look increasingly likely," said Mark O'Byrne, executive director at Gold and Silver Investments.
Gold for December delivery gained $39.30, or 4.5%, to $921.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal has risen more than $70 in three straight sessions since Monday.
The Fed said it had cut its key lending rate by a half point to 1.5%. The ECB trimmed its key rate to 3.75% from 4.25%, and the Bank of England went to 4.5% from 5%. The Bank of Japan issued a statement backing the action. The Bank of Canada, the Swedish Riksbank and the Swiss National Bank also cut rates. See full story.
The U.S. dollar fell against the euro and the Japanese yen after the rate cuts, helping push up dollar-denominated gold prices. Gold and the dollar tend to move in the opposite direction.
Investors are expecting central banks to further ease their monetary policies, adding more upward pressure on inflation and helping gold rise further. Traditionally, gold is seen as a hedge against inflation.
"While this [the rate cut] is a big step, it is unlikely to prove sufficient to stem the rot," said Marc Chandler, a currency analyst at Brown Brothers Harriman. "Additional rate cuts are likely and further measures to inject liquidity and re-capitalize banks are needed."
In other metals markets, platinum for January delivery fell slightly to $1,014.80 an ounce, while December palladium rose 1.3% to $201.05 an ounce. December silver rose 5.6% to $12.05 an ounce.
December copper slid 3.6% to $2.44 a pound.
In spot trading, the London gold-fixing price -- used as a benchmark for gold for immediate delivery -- stood at $913 an ounce Wednesday morning, up $36.25 from Tuesday afternoon.
