ECONOMY

Gold price soars after Fed’s surprise on stimulus

New York traders watch U.S. Federal Reserve Board Chairman Ben Bernanke’s news conference. (Reuters)

Gold surged more than 4 percent to above $1,360 an ounce on Wednesday after the U.S. Federal Reserve’s unexpected decision to continue buying bonds unleashed bullion’s biggest one-day buying spree since June 2012.

The move by the U.S. central bank to continue its $85 billion monthly buying pace due to worries about rising borrowing costs surprised financial markets that were broadly braced for a reduction in the central bank’s monetary stimulus.

Silver rallied around 6.5 percent, its biggest one-day gain since November 2008.

Citing strains in the economy from tight fiscal policy and higher mortgage rates, the Fed decided against the tapering of asset purchases that investors had all but priced into asset markets across the board.

“There is no immediate visibility as to how much tapering will be done and when, so devaluation of currencies marches on,” said Jeffrey Sica, chief investment officer at New Jersey-based Sica Wealth Management, which has over $1 billion in client assets. “And as long as that happens, gold looks attractive.”

The metal is a traditional hedge against inflation and economic uncertainties, particularly those brought about by central-bank actions.

After the Fed announcement, gold’s gains sharply outpaced other markets’, with the S&P 500 equities index rallying 1.2 percent to a record high and the Thomson-Reuters CRB index up around 1 percent led by crude oil’s gains. A 1 percent drop in the dollar index also underpinned gold buying.

 

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Last Update: Thursday, 19 September 2013 KSA 08:13 - GMT 05:13
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