Tags: Gold | Dollar | Fed | Easing

Gold Soars as Dollar Plunges on Fed's New Easing

Thursday, 04 Nov 2010 10:13 AM

Gold soared to within a whisker of its record high on Thursday as the U.S. dollar plunged against a currency basket after the Federal Reserve said it would pump $600 billion into financial markets to boost the U.S. economy.

The Federal Reserve committed to buy billions of dollars' worth of government bonds late on Wednesday in a fresh effort to support a struggling U.S. economy, undermining the U.S. currency and stoking fears over longer-term inflation.

Spot gold hit a high of $1,381.20 an ounce, up 2 percent and close to its record $1,387.10, and was bid at $1,376.90 an ounce at 1314 GMT, against $1,347.15 late in New York on Wednesday. U.S. gold futures for December delivery rose $40.00 to $1,377.60.

The Fed's move sparked a rally across the precious metals, with silver climbing 3 percent to its highest since 1980, palladium up nearly 5 percent to a 9-1/2 year peak and platinum reaching its strongest since May.

"There is definitely going to be some more fallout from what has been announced," said Credit Suisse analyst Tom Kendall. "Clearly this is contributing to the bearishness on the U.S. dollar, and that is bullish for all commodities, not just gold."

The dollar fell sharply on Thursday, sliding 1 percent against a basket of currencies, as the market concluded that the Fed's move spelled more dollar supply that would be likely to weigh it down further.

Weakness in the U.S. unit tends to benefit dollar-priced commodities in general as it makes them cheaper for other currency holders, but gold in particular, as it can be bought as an alternative asset to the currency.

Currency analysts are waiting to see what the broader implications of the Fed's move will be in what is still a heavy news week on the macroeconomic front.

"As a result of last night's decision, the risk of tensions within emerging market economies has risen as officials from Brazil, South Korea and China pledged to take steps to curb capital inflows," said CMC Markets analysts in a note.

ECB STATEMENT EYED

The euro maintained gains and held near a 9-1/2 month high against the dollar after the European Central Bank opted to keep interest rates unchanged as expected.

The currency markets are now closely watching a statement by ECB chairman Jean-Claude Trichet for an early hint on whether the bank will phase out more crisis support measures in January.

On the physical side of the gold market, Indian demand was strong during the week of the Dhanteras festival, which celebrates prosperity, and the Diwali festival of light. Scrap sales also slowed to a trickle.

Among other precious metals, silver rose to a 30-year high at $25.58 an ounce, tracking gains in gold, and was later at $25.49 against $24.80.

Palladium meanwhile rallied to its strongest since May 2001, lifted by strength in gold and expectations its underlying fundamentals will improve as demand from automakers recovers and supply struggles to keep pace.

"Tracking gold is part of the story, but there is talk in the market that Russian state stocks are nearly depleted — that story has come back every year for 10 years now — and there is a lot of investment buying on back of that," said one European PGMs trader.

Palladium peaked at $674 an ounce and was later at $667.22 an ounce against $643.72 late on Wednesday. Platinum rose to a near five-month high at $1,747.99 an ounce and was later at $1,738.99 an ounce against $1,703.

© 2017 Thomson/Reuters. All rights reserved.

   
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Gold soared to within a whisker of its record high on Thursday as the U.S. dollar plunged against a currency basket after the Federal Reserve said it would pump $600 billion into financial markets to boost the U.S. economy. The Federal Reserve committed to buy billions of...
Gold,Dollar,Fed,Easing
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2010-13-04
Thursday, 04 Nov 2010 10:13 AM
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