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Gold Settles On Six-Week High as Fed Boosts Markets

Published: Thursday, 26 Jan 2012 | 4:11 PM ET

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By: Reuters

Gold prices hit 6 1/2 week highs on Thursday as stock markets, commodities, and the euro all rallied after the Federal Reserve said it planned to keep interest rates at rock bottom for some years and hinted at further economic stimulus measures.

Don Farrall | Getty Images

The gain extends the metals' biggest one-day rise in three months on Wednesday after the U.S. Federal Reserve said it might consider further monetary easing through bond purchases and pushed back the likely timing of an eventual interest rate hike to late 2014.

The news cheered gold investors, who have long seen a U.S. rate hike, which would lift both the dollar and the opportunity cost of holding non-interest bearing bullion, as the likely point at which the precious metal's rally would peter out.

"The strong rally in gold changed what prior to the announcement had been a test of gold's resolve," said Saxo Bank senior manager Ole Hansen. "The Fed statement changed all that, and from thinking that the gold rally potentially only had one year left to run, it could now continue for longer. The 'off' button on the printing press has well and truly been taped over."

Spot gold [XAU= Loading... () ] jumped 1.11 percent to $1,729.76 an ounce, while U.S. gold futures [GCCV1 Loading... () ] for February delivery settled up $24.80 an ounce at $1,724.90.

The euro [EUR= Loading... () ] rose to a five-week high against the dollar as a dovish stance from the U.S. Federal Reserve supported risk appetite and on speculation of a breakthrough in Greek debt negotiations.

The top negotiator for private creditors is scheduled to return to Athens later to resume talks with officials on a debt swap deal for Greece.

Equity markets were higher, meanwhile, tracking gains in Asia after the Fed announcement raised hopes the central bank was ready to offer additional stimulus for growth.

"Risk assets such as the euro and equities rallied along with gold," said HSBC in a note.

"The addition of a new phrase in the statement in which the committee expects to maintain a highly accommodative monetary policy is a clear bias towards monetary easing," it added.

"A highly accommodative monetary policy is bullish for gold."

Technical Levels Breached

Confidence in gold was further lifted by its close above its 100-day moving average, a key technical marker that currently stands at around $1,684, on Wednesday. his marked its first close above that level since early December.

It is now better positioned from a technical perspective, analysts said, though a short-term correction is possible.

"Precious metals have taken off near term, breaking through several important resistance levels," said Barclays Capital in a note.

"We are wary of markets being overstretched though and look for gold and silver to correct ahead of prior highs." Physical gold trade was muted by the closure of markets in China and other key Asian gold-buying centres for the Lunar New Year holiday.

Silver [XAG= Loading... () ] was up 1.1 percent at $33.65 an ounce, having tracked gains in gold up to its highest in nearly eight weeks at $33.57 an ounce.

Spot platinum [XPT= Loading... () ] was up 1.85 percent at $1607.75 an ounce, while spot palladium [XPD= Loading... () ] dropped 0.18 percent to $689.75 an ounce.

Miner Lonmin, the world's third-largest platinum producer, posted a rise in first-quarter output despite the impact of safety stoppages, which it warned could hit both sales and costs if current trends persist.

Anglo American, whose Anglo American Platinum unit is the world's biggest miner of the white metal, said its stoppages were more than double those of the fourth quarter of 2010. Refined platinum production was 9 percent lower.

Poll: New Gold Record Seen

Gold's record-breaking rally of the last decade is set to extend into this year and next as monetary policy stays loose and central banks build reserves, a Reuters poll showed on Thursday.

Silver is expected to decline for a second year running after hefty price swings spooked investors last year.

The survey of 45 analysts carried out by Reuters in January predicted an average spot gold price of $1,765 an ounce in 2012, 14 percent higher than last year's average of $1,544. This was itself 26 percent above 2010's $1,228 an ounce.

Several big banks, including UBS [UBS Loading... () ], Morgan Stanley [MS Loading... () ], and Societe Generale, forecast the average price would break above the $2,000 level, which would be well above last September's record $1,920.30. Their predictions highlight the extreme nature of a rally that started in 2001 from an average level of $270.