MW:Gold rallies as dollar sinks on Fed policy outlook
By Carla Mozee, MarketWatch
MADRID (MarketWatch) — Gold futures rallied by nearly $50 an ounce Thursday after Federal Reserve Chairman Ben Bernanke said U.S. interest rates will remain low to aid economic growth.
Gold for August delivery GCQ3 +2.70% climbed $36.40, or nearly 3%, to $1,284 an ounce in electronic trade.
At an appearance in Boston late Wednesday, Bernanke indicated that the U.S. central bank wouldn’t rush to raise interest rates, even after the unemployment rate reaches the Fed’s target of 6.5%.
Ahead of his remarks, minutes from the Fed’s meeting in June showed that half of the policy-setting board’s members backed paring bond purchases by the end of this year. On the other hand, “many” other members said it’s likely asset purchases would be needed into 2014.
The signal that the Fed will likely maintain an accommodative policy stance boosted gold prices, as quantitative easing by the Fed and other central banks worldwide has been seen as supporting a rally in gold in recent years.
“We presume that the strong reaction of the precious metal markets is also related to the fact that investors believe that the Fed’s actions and attitude do not differ significantly from those of the ECB or BoJ,” said Carsten Fritsch and other analysts at Commerzbank in a note. “This is likely to prompt investors to increasingly seek a ‘safe haven’ and a currency that is independent of the central banks, thus again luring in buyers of gold.”
The analysts added that the massive slump that gold has seen since April seems to have helped correct the market, with “most speculative investors having already pulled out of gold.”
Gold has had a rough year, in part on expectations that the Fed will start to taper bond purchases. The precious metal dropped 23% in value in the second quarter and is down nearly 26% on a year-to-date basis.
The Fed’s message also hit the U.S. dollar DXY -0.13% , which took a beating on the prospect of further monetary easing. A weaker greenback benefits dollar-denominated commodities such as gold as it makes them less expensive for holders of other currencies.
Ahead of the Fed minutes, August gold closed up $1.50, or 0.1%, to settle at $1,247.40 an ounce.
Thursday’s move in gold put prices on track for a fourth consecutive day of gains.
But Justin Smirk, senior analyst at Westpac, said “opportunity buying” in gold was driving prices more than anything specific, and added that he “wouldn’t expect this to last” as profit-taking will likely start in the next few days, according to a quote from Dow Jones Newswires.
On Thursday, silver for September delivery SIU3 +3.44% jumped 76 cents, or close to 4%, to $20.06 an ounce, and September copper HGU3 +3.09% rose 9 cents, or 3%, to $3.18 a pound.
Platinum for October delivery PLV3 +2.66% jumped $34.80, or 2.5%, to $1,402.90, and September palladium PAU3 +1.41% notched a rise of $10.70, or 1.5%, to $724.50 an ounce.
