Gold Price Climbs to 7-Week High Above $1,720

Gold climbed to a seven-week high as the metal continues to rise on the "Fed-induced rally." Yesterday, after the Fed statement was made, gold jumped $44 and another $12 today. Not only did gold have a good day, silver did too rising 4% on the news.

Thursday, January 26, 2012, 9:13am EST
Written by GoldAlert Staff
Gold Alert

GOLD PRICE NEWS – The gold price climbed $12.08, or 0.7%, to $1,723.63 per ounce Thursday morning as the yellow metal built on yesterday’s Fed-induced rally. Silver added to its gains alongside the gold price, by $0.27, or 0.8%, to $33.61 per ounce. Equity markets throughout Asia and Europe were largely higher, while U.S. markets looked to open in the black as well.

Yesterday, the Federal Reserve lit a fire under the price of gold, as the yellow metal jumped $44.72, or 2.7%, to $1,711.55 per ounce. The surge in the gold price was accompanied by U.S. dollar weakness and a broad-based rally on Wall Street. With its advance, the gold price extended its year-to-date gain to 9.5% and reached its highest level since December 9, 2011.

While the gold price also posted its best day since October 25, 2011, silver fared even better. Gold’s sister precious metal climbed $1.28, or 4.0%, to $33.34 per ounce. Other precious metals headed north as well, with platinum and palladium futures each rising 2.0% to $1,583.20 and $694.00 per ounce, respectively. Among cyclical commodities, copper futures increased by a more modest 0.9% to $3.84 per pound, while crude oil added 0.5% to $99.40 per barrel.

The gold price rally propelled gold shares substantially higher on Wednesday, as the group was the best performing sector in the equity markets. The Market Vectors Gold Miners ETF (GDX) rebounded from an intra-day low of $51.58 per share to finish higher by 6.7% at $55.23. The gain far outweighed that of the broader markets, as the S&P 500 Index rose 0.9% to 1,326.06. Among large-cap gold producers, two of the top performers were Agnico-Eagle Mines (AEM) and Yamana Gold (AUY). AEM soared by 9.0% to $37.58 per share and AUY by 9.8% to $16.92 per share.

The primary catalyst for yesterday’s gold price strength was the particularly dovish tone emanating from the Federal Open Market Committee (FOMC) meeting. There, the Federal Reserve chose to extend the timeframe for its zero-interest rate policy to late-2014 from mid-2013. Additionally, it introduced new language in the FOMC statement by saying that it intends to maintain a “highly accommodative” monetary policy stance for the foreseeable future.

Along with the statement, for the first time the Ben Bernanke-led Federal Reserve released a summary of economic projections from its individual members. In particular, the Fed provided a chart showing the time at which the central bankers feel it will be appropriate to conclude its accommodative monetary policy stance. Eleven of 17 members identified this time as 2014 or later, with four choosing 2015 and two choosing 2016.

Commenting on the Fed’s actions, Credit Suisse strategist Carl Lantz characterized the central bank as even more dovish than meets the eye. In a note to clients, Lantz wrote that “The fact that the FOMC was willing to provide late 2014 as the earliest likely date for the first rate hike suggests that the actual expectation is significantly beyond late 2014…We suggest that by announcing that the first hike is unlikely to occur until ‘at least’ late 2014, the FOMC is actually providing the bottom of a confidence band around the committee’s intended estimate for the first hike…it would appear that the ‘core’ of the committee and a strong plurality of voters are in the 2015 or 2016 camps.”

With the Fed expected to keep the monetary spigots wide open for the next several years, real interest rates are likely to remain in negative territory for the better part of the decade. Furthermore, judging by the ascent in the price of gold on Wednesday, it appears that investors may agree with Lantz that rates are unlikely to rise until 2015 or 2016.

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