Gold for December delivery added $17.80 to settle at $1,739.60 an ounce at the Comex division of the New York Mercantile Exchange and prices were adding more than $20 in after-hours trading. The gold price has traded as high as $1,745.60 and as low as $1,715.50 an ounce while the spot gold price was popping $10, according to Kitco's gold index.
Silver prices jumped $1.21 to close at $33.94 an ounce while the U.S. dollar index was down 0.33% at $77.08.
Gold prices were breathing a sigh of relief Wednesday as the U.S. dollar cooled off, making the metal cheaper to buy in other currencies. The dollar index had rallied almost 3% since Friday which had dragged down all assets, especially gold. Experts think the two should continue to move inversely to each other in the short term creating more volatility.
Gold was also unperturbed by the Federal Reserve's decision not to pump more money into the system. The Fed lowered its 2011 growth target to 1.6%-1.7% and 2012 estimate to 2.5%-2.9%. The Fed sees inflation rising to 2.9% in 2011 but then slipping back down to 2% by 2012, its informal target.
As many analysts had been expected, the Fed is talking about "enhancing the clarity of public communication," meaning that it is looking at tools to tie monetary policy to specific conditions -- for example, keeping rates at zero until the unemployment rate dips below a predetermined level as long as inflation remains below the Fed's target. Fed chairman, Ben Bernanke, said in his press conference that no decisions were made on this but that giving clarity is a big priority.
The Fed was much more upbeat about recent economic growth, saying that it strengthened rather than remained slow and that household spending has increased at a faster pace.
"The FOMC meeting seemed really upbeat and positive," says Phil Streible, senior market strategist for MF Global, which initially curbed some of gold's rally. But during Ben Bernanke's press conference gold started to climb. "People still believe in longer term fundamentals and used that small correction to add to positions." The Fed did say it still sees significant downside risks to the economic outlook.
Gold was hoping for, but not pinning its hopes on, more quantitative easing, which many experts think the Fed will be forced to do in mid-2012. Charles Evans, president of the Chicago Federal Reserve Bank, dissented from his peers and called for more stimulus to jump start the economy. But even absent more money, consistent low rates remain supportive for gold.
With rates at zero and overall inflation at 3.9%, real interest rates are a negative 3.9%, which means one dollar in the bank is now worth 96.1% versus 100% of its previous value. As cash loses value, investors opt for gold as place to store wealth until interest rates can revert to positive territory.
Ross Norman, CEO of SharpsPixley, however, is looking mostly at Europe. "U.S. news has been sidelined and the focus has been on Europe." Norman thinks the most critical mover for gold is still the U.S. dollar. "There seems to be a ping pong in terms of what is moving gold. ... normally [the Fed would] be a big mover but that investors are still really focused on Greece and the euro."
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