Gold Jumps Most in Nine Months as Silver Soars on Fed

Gold surged the most in nine months and silver jumped to a 13-week high as the Federal Reserve said U.S. interest rates will remain low, driving the dollar down and boosting demand for the metals as alternative investments.

Prices are jumping after weeks of quiet trading that drove the metal’s 60-day historical volatility to the lowest since 2010. Even as the European Central Bank on June 5 unveiled unprecedented steps to boost economic growth, volatility kept sinking. Now, Fed Chair Janet Yellen’s outlook for rates to stay low for a considerable time and escalating violence in Iraq is reviving investor interest.

Bullion climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent, boosting inflation concerns. The metal plunged 28 percent last year as consumer costs stayed muted and equities rallied. The dollar fell to a four-week low today against a basket of 10 major currencies.

“People perceived what Yellen said yesterday as less hawkish, and that’s bringing in money to the gold market,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “The dollar is moving lower, and gold is gaining because of that.”

Gold futures for August delivery rose 3.3 percent to settle at $1,314.10 at 1:36 p.m. on the Comex in New York, the biggest gain for a most-active contract since Sept. 19. The metal reached $1,322, the highest since April 15.

Trading was almost 60 percent higher than the 100-day average for this time, according to data compiled by Bloomberg. Silver almost doubled.

More Dovish

The Federal Open Market Committee cut asset purchases at the end of a two-day meeting for the fifth straight time. Fed participants estimated long-term growth for the U.S. economy of 2.1 percent to 2.3 percent, compared with 2.2 percent to 2.3 percent in March and 2.5 percent to 2.8 percent in January 2010.

Gold traded above the 100-day moving average, a bullish signal to some analysts who study historical price patterns, said Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago.

“A lot of technical buying is helping gold,” Streible said in a telephone interview. “We saw a lot of buying come in once the market moved above $1,300.”

Gold’s 60-day historical volatility, which yesterday reached the lowest since October 2010, rebounded to a one-month high today, according to data compiled by Bloomberg.

The metal has climbed 9.3 percent this year, partly on concern that economic growth in the U.S. was stalling and as violence erupted in Iraq and tension between Ukraine and Russia escalated.

Army Battle

President Barack Obama said he’s sending as many as 300 U.S. military advisers to assist the Iraqi army battle an insurgency and is prepared to take additional “targeted” action if necessary.

“Some people definitely are buying gold because of political uncertainties,” Streible said.

Silver futures for July delivery soared 4.4 percent to $20.648 an ounce on the Comex, the biggest gain since Feb. 14. The increase was the biggest today among the 24 raw materials in the Standard & Poor’s GSCI Spot Index, followed by gold.

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