Gold price rallies $55 after Fed shocker
The gold price spiked more than $55 or over 4% to a high of $1,364.60 an ounce in late trade on Wednesday after the Federal Reserve announced no cuts to its economic stimulus program.
Chairman Ben Bernanke was expected to announce a $10 billion $20 billion reduction in the bank’s asset purchase program which was running at $85 billion a month, but a 9:1 vote put off a decision in a move that come as something of a shocker to markets.
The Fed statement cited a darkening employment outlook and said recent spikes in market interest rates and government spending cuts were “restraining economic growth.”
After a more modest initial jump, the gold rally gathered steam during a press conference after the FOMC announcement.
Bernanke explained: “As today’s decision underscores, asset purchases are not on a preset course,” adding that while it may still happen this year, it would depend on the US economic environment at the time and “confirming evidence.”
The bank’s QE program, which has pumped more than $3.6 trillion of easy money into financial markets, weakens the dollar and increases the risk of inflation.
QE burnishes gold’s status as a hedge against inflation and a storer of wealth.
The gold price has increased nearly 60% since QE1 was announced in December 2008 when the ruling price was $837 an ounce.
But the metal has retreated more than $300 in 2013 and without a strong catalyst for prices to move higher looks set to end its 13-year unbroken bull run.
Spot gold reached a high of $1,909 on August 23, 2011, while the most active contract, usually for delivery in three months hit an all-time peak on September 6, 2011 of $1921.