PRECIOUS-Gold rises after Fed makes surprise low-rate pledge

Wed Dec 12, 2012 3:58pm EST

* Gold up after Fed adopts numerical thresholds in surprise
move
    * Interest rates near zero until unemployment drops-Fed
    * Fed keeps to $85 bln pace of monthly purchases
    * Coming up: U.S. producer prices, retail sales Thursday

 (Recasts, adds market details, updates prices)
    By Frank Tang
    NEW YORK, Dec 12 (Reuters) - Gold rose on Wednesday as its
inflation-hedge appeal received a boost after the U.S. Federal
Reserve took an unprecedented step to commit to near-zero
interest rates as long as unemployment remains high.
    Bullion benefited after the Fed officials revised lower
their forecasts for economic growth and inflation next year. The
Fed also replaced a more-modest expiring stimulus program with a
fresh round of $45 billion Treasury debt monthly purchases on
top of the $40 billion per month in mortgage-backed bonds they
started buying in September. 
    In a surprise move, the Fed also adopted numerical
thresholds for policy, a step that had not been expected until
early next year. It said now it will keep rates near zero until
the U.S. unemployment rate falls to 6.5 percent.
    Analysts said the move is bullish for gold because it
suggests that the U.S. central bank would keep creating new
money to stimulate the economy. Many investors buy gold as a
hedge against inflation and economic uncertainty as a result of
money printing by central banks.
    "It takes a little while to sink in that the Federal Reserve
is focusing more and more on employment and less and less on
inflation," said Axel Merk, chief investment officer of Merk
Funds which has $650 million in assets.
    Spot gold was up 0.2 percent at $1,713.69 an ounce by
3:09 p.m. (2009 GMT)
    U.S. COMEX gold futures for February delivery settled
up $8.30 an ounce at $1,717.90, with trading volume about 20
percent below its 30-day average, preliminary Reuters data
showed.
    The Fed also said it will hold its commitment to hold rates
steady until its new threshold as long as inflation was
projected to be no more than 2.5 percent one or two years ahead
and inflation expectations were contained.
    However, traders said that the foremost concern for the Fed
right now is job creation rather than keeping inflation low.
    Silver, which tends to be more volatile than gold,
rose 1.7 percent to $33.51 an ounce.
    
    NOT ANY TIME SOON 
    Economists, however, do not expect a speedy job recovery for
unemployment to hit the Fed's new target of 6.5 percent. Last
Friday, the Labor Department said that unemployment rate fell to
a near four-year low of 7.7 percent as companies kept up their
slow but steady hiring pace in November. 
    "That's a bullish for gold for the Fed to say it will keep
interest rates low until unemployment rate drops to 6.5 percent
- it doesn't look that's going to happen anytime soon," said
Bill O'Neill, partner of commodities investment firm LOGIC
Advisors.
    Among platinum group metals, platinum was up 0.1
percent at $1,634.74 an ounce, while palladium gained 0.9
percent to $695.47 an ounce.
    Platinum and palladium have outperformed gold in recent
months, rising nearly 8 percent and 19 percent respectively
since late October, helped by tight supply and a brighter
economic outlook in China and the United States.
    The planned launch of the Sprott Physical Platinum and
Palladium Trust also underpinned sentiment, traders said. The
trust could buy more than 107,000 ounces of platinum and 253,000
ounces of palladium, Reuters calculations showed.

 3:09 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold FEB   1717.90   8.30   0.5  1708.50 1725.00  153,765
 US Silver MAR  33.782  0.765   2.3   32.995  33.875   43,575
 US Plat JAN   1646.40   6.40   0.4  1631.40 1647.50   13,180
 US Pall MAR    701.15   4.35   0.6   693.20  702.00    2,753
                                                               
 Gold          1713.69   3.84   0.2  1708.35 1723.01         
 Silver         33.510  0.570   1.7   32.940  33.760
 Platinum      1634.74   1.74   0.1  1585.00 1643.50
 Palladium      695.47   5.97   0.9   695.02  698.50
                                                               
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        158,002   187,563   174,292     13.85   -0.06
 US Silver       46,223    59,526    52,676     21.84    0.60
 US Platinum     15,078     8,605     8,858     17.33    0.07
 US Palladium     2,772     6,180     4,774                  
                                                               
 
 (Editing by Bob Burgdorfer and Marguerita Choy)
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