MW: Gold rallies 6% as Fed's plan fuels inflation worries
Gold futures rallied more than 6% Thursday to above $940 an ounce on expectation that the Federal Reserve's plan to buy $300 billion in longer-term Treasurys may stir inflation, raising gold's appeal as a hedge against rising prices.
The U.S. dollar fell after the Fed's decision, which is essentially creating money to buy national debt -- an effort analysts said could hurt the greenback and raise gold's investment appeal. Meanwhile, surging demand for gold pushed up holdings in the largest gold exchange-traded fund to a near record level.
Gold for April delivery surged $56.50, or 6.4%, to $945.60 an ounce on the Comex division of the New York Mercantile Exchange in early morning trading. It climbed to $952.80 earlier in the session, rising above $950 for the first time in nearly one month.
Gold's gain came after it lost $27.70 to end at $889.10 Wednesday, the lowest closing level in two months. Wednesday's floor trading ended before the Fed announced its decision.
George Gero, a precious metals trader for RBC Capital Markets, called gold's reverse from down nearly $30 dollars to up nearly $60 "shock and awe." The Fed's plan "could change [the] inflation outlook and result in a greater trading range," he added.
Silver prices marked an even bigger rally. Silver for May delivery jumped 11% to $13.25 an ounce.
The Fed said it would buy longer-term Treasury bonds to help arrest a deepening slide in the U.S. economy, a surprise move that also sent stocks soaring and triggered violent moves in other markets.
The Fed's move, one of several actions taken Wednesday aimed at making it less expensive to borrow money, doubled the amount of money the central bank has poured into the economy to try to stimulate economic activity. See full story.
"The Fed's announcement of further quantitative easing triggered renewed inflation fears," wrote James Moore, a precious metals analyst at TheBullionDesk.com. "Gold is well placed to re-challenge $1000 an ounce."
Holdings in SPDR Gold Shares jumped to 1,084.33 tons Wednesday, up 15.28 tons from a day ago, according to the latest data from the fund. The total is nearly 80 tons higher than a month ago.
In economic news Thursday, the number of people collecting state unemployment benefits jumped by 185,000 to a record seasonally-adjusted 5.47 million in the week ending March 7, while new claims dipped by 12,000 to 646,000 in the week ending March 14, the Labor Department reported Thursday. See full story.
Other metals also made major gains Thursday. April platinum rose 5% $1,094.50 an ounce. The June contract for palladium added 5.1% to $197.90 an ounce. Meanwhile, May copper gained 5.5% to $1.81 a pound.
