Gold Climbs to Record as Dollar Weakens Following Fed Statement

Gold futures climbed to a record $1,298 an ounce after the Federal Reserve said it was willing to ease monetary policy further to boost the U.S. economy, triggering a slump in the dollar.

The metal surged to an all-time high for the fifth straight session. The greenback declined to a six-month low against a basket of six major currencies. The Fed signaled yesterday it may expand its near-record $2.3 trillion balance sheet as soon as November. Silver extended a rally to the highest price since March 2008.

“People are finally starting to understand that quantitative easing will devalue the currency,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “That’s why they’re shifting into gold and silver.”

Gold futures for December delivery rose $20.30, or 1.6 percent, to $1,294.60 at 10:17 a.m. on the Comex in New York. Before today, the metal gained 16 percent this year.

The Fed has kept its benchmark interest rate at zero percent to 0.25 percent and purchased mortgage-backed securities and Treasuries to help bolster the economy. Yesterday, policy makers said in a statement they are “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

‘Stealth Devaluation’

“If and when this ‘additional accommodation’ occurs, the reasoning will be more about a stealth devaluation of currency than a boost for consumer spending,” Brad Yim, a New York-based analyst at Castlestone Management Ltd., said in an e-mail. The Fed wants a lower dollar to stimulate exports, and “a move like this should provide further support for gold in the near to medium term.”

Gold for immediate delivery rose to a record $1,296.30.

The metal is heading for its 10th consecutive annual gain amid tame inflation. Fed policy makers said yesterday that inflation is “somewhat below” levels consistent with its target for stable prices, a signal that low interest rates may remain for an extended period.

The Reuters/Jefferies CRB Index of 19 raw materials has climbed 6.1 percent this month.

“The Fed has encouraged investors to front-run some of their ideas and get involved in some of these assets before they make a move toward extended quantitative easing,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock, a broker in Chicago.

Gold has outperformed global equities, Treasuries and most industrial metals, spurring record investments in exchange- traded products backed by the metal.

Global holdings of gold by ETPs gained 1.01 metric tons to a record 2,089.5 tons yesterday, according to Bloomberg data from 10 providers. They have increased 16 percent this year.

Inflation

“I don’t think many people are actively trading gold based on a view that inflation is likely to accelerate in the near term,” said Tom Kendall, an analyst at Credit Suisse Group AG in London. “Certainly, some people are concerned about the longer-term impact of current monetary policy on inflation.”

Silver futures for December delivery jumped 46.5 cents, or 2.5 percent, to $21.15 an ounce. Earlier, the metal reached $21.20, the highest level since March 17, 2008.

Platinum futures for October delivery rose $24.40, or 1.5 percent, to $1,636.80 an ounce on the New York Mercantile Exchange.

Palladium futures for December delivery gained $15.70, or 3 percent, to $545.76 an ounce, halting a four-session slide.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Anna Stablum in London at astablum@bloomberg.net;

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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