Gold prices closed modestly higher on Tuesday and then surged in after hours trading on the Federal Reserve's interest rate cut. Before the decision was announced, February gold closed up $6.20 at $857.50 per ounce. In electronic trading, the metal moved as high as $857.50.
In an unprecedented move, the Federal Reserve established a target range for the federal funds rate from zero to one-quarter percent Tuesday, bringing the target to its lowest level in over 50 years. The highly unusual move of establishing a target range comes as U.S. policymakers face the most severe economic crisis since the Great Depression.
The dollar plummeted against other majors on the news, extending its 2 1/2 month lows versus the euro and moving back toward a 13-year trough against the yen.
On the economic front, a Department of Commerce report showed that housing starts fell by 18.9 percent to an annual rate of 625,000 from the revised October estimate of 771,000. Economists had been expecting starts to slip to 730,000 from the 791,000 originally reported for the previous month.
The U.S. Labor Department revealed that consumer prices dropped 1.7 percent from the previous month, the largest monthly slide on record. This came as energy prices plummeted 17 percent.
Crude oil for January delivery closed at $43.60, down 91 cents on the session. Oil traders awaited the Organization of Petroleum Exporting Countries' expected production cut on Wednesday.
