MW: Gold rallies 7% as Fed move fuels inflation fears
Gold futures climbed to top $950 an ounce after the Federal Reserve pledged to purchase as much as $1.15 trillion in U.S. bonds and mortgage-backed securities to encourage lending, sparking worries of inflation ahead.
The U.S. dollar's losses in the wake of the Fed's move also lifted gold prices. Investors typically buy gold as a hedge against inflation and a weaker dollar.
Gold for April delivery surged $66.9, or 7.6%, to $956 an ounce on the Comex division of the New York Mercantile Exchange. It climbed to $958.7 earlier in the session, the highest level 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 quick reverse from down nearly $30 dollars to up more than $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 13.6% to $13.58 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. Read The Fed.
"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 Economic Report on weekly jobless claims.
On Wall Street, stocks meandered between gains and losses following Wednesday's rally. Asian and European stocks also moved higher. In energy trading, crude jumped more than 7% to about $52 a barrel.
