Fed Outlook Sends Investors to Gold
Source: Matt Whittaker, Dow Jones Newswires (8/11/10)
"Fed's deteriorating growth outlook broadly speaking bullish for gold."
The market is largely ignoring the generally stronger dollar, which often pressures dollar-denominated gold, because both are being seen as safe havens, along with U.S. Treasuries.
The most actively traded gold contract for December delivery was recently up $9.80, or 0.8%, at $1,207.80/oz. on the Comex division of the New York Mercantile Exchange.
"The Fed's commitment to maintaining liquidity and its deteriorating growth outlook are broadly speaking bullish for gold," said Standard Bank Analyst Leon Westgate.
Gold is often seen as a stronger store of value than equities and other commodities in times of economic uncertainty, and the metal gained ground after the Federal Open Market Committee on Tuesday said the economic recovery "has slowed in recent months" and the "pace of economic recovery is likely to be more modest in the near term than had been anticipated."
The Fed also repeated its commitment to keep its target for the benchmark federal funds rate at "exceptionally low levels" for an "extended period."
Ultra-low interest rates have formed a background of support for gold prices in recent months—helping to send the metal to a record above $1,260 in June—because they lower the opportunity costs of owning gold, which pays no interest.
Extra liquidity injected into the market through the Fed's monetary easing has also helped boost investment in gold.
The U.S. stimulus measures, combined with those of other countries, have also led some to believe that inflation will rise over the next several years, providing another leg of support for gold, which is often bought as a hedge against rising prices.