Gold surged to a record price in New York as plans by the Federal Reserve to buy more debt drove the dollar lower, boosting demand for precious metals as alternative investments.
After settling at $1,383.10 an ounce on the Comex, gold rallied to $1,393.40, the highest ever, in after-hours electronic trading. The dollar fell to the lowest level in almost 11 months against a basket of major currencies after the Fed yesterday said it will buy an additional $600 billion of Treasuries through June to spur growth. Gold futures are up 27 percent this year, heading for a 10th straight annual gain.
“The Fed gave the green light to just continue buying gold,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “You can just short the dollar and go long on commodities with impunity. Until the Fed mops up this liquidity, the sky is the limit for gold.”
Gold futures for December delivery rose $45.50, or 3.4 percent, as of the 1:30 p.m. close on the Comex in New York, the biggest gain for a most-active contract since March 19, 2009. The metal traded at $1,391.90 as of 4:27 p.m. Gold for immediate delivery in London rose to an all-time high of $1,393.55.
The Federal Open Market Committee said yesterday that it was compelled to act because “progress” toward objectives of full employment and stable prices “has been disappointingly slow.” The U.S. and other governments have kept interest rates low and spent trillions of dollars to revive the global economy.
“The Fed aims to weaken the dollar and create inflation,” said Peter Schiff, the president of Euro Pacific Capital in Westport, Connecticut. “Gold and non-dollar investments should benefit from their efforts.”
The dollar also fell to a nine-month low against the euro as the European Central Bank kept its benchmark rate at 1 percent, signaling it will likely stick with its stimulus-exit strategy. The federal-funds rate has been zero to 0.25 percent since December 2008.
“Investors are starting to think about the long-term inflationary threat,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “The $600 billion in bond purchases looks very friendly for buying anything tangible like gold. Commodities are going to look undervalued.”
The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose to a two-year high.
“Commodity prices are far more likely to rise than to fall,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. The Fed has signaled that “it will do what it must to assure that deflationary pressures are dealt a death blow, that inflation is the better choice.”
Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 2.17 percent from 2.4 percent at the beginning of the year. Gold is traditionally a hedge against accelerating consumer prices.
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