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Gold Prices Soar on Fed News, Other Factors

ALEX NEWMAN
New American [1]
January 27, 2012

A combination of several factors, including a declining dollar and the Federal Reserve’s announcement that it would keep interest rates at virtually zero until late 2014, helped to send gold and silver prices soaring to multi-week highs. Analysts expect the upward trend to continue as paper currencies founder and gloomy news continues to dominate the economic headlines.

The spot price [2]for gold was around $1,725 by 2 p.m. Eastern time after jumping more than $60 since the day before, up almost 30 percent from a year ago and more than 7.5 percent over the last 30 days. It smashed through $1,700 on Wednesday for the first in six weeks.

“At the moment everything points to even higher prices, given the strong risk appetite, the better mood among market players, the strong equity markets and the weak dollar,” Commerzbank analyst Daniel Briesemann told [3] Reuters.

Analysts said the single most important factor behind gold’s strong rally was the Federal Reserve. On Wednesday, the privately owned central bank promised to keep short-term interest rates at rock bottom until late 2014, extending the date from its previous pledge to keep rates down until mid-2013.

Also bullish for gold — and bearish for the U.S. dollar, of course — was Fed boss Ben “helicopter” Bernanke’s veiled threat [4]to unleash more so-called “Quantitative Easing,” known in simpler terms as creating new “money” out of thin air and pumping it into the economy by purchasing bonds. The dollar immediately took a hit against other major currencies.

“The framework makes very clear that we need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” Bernanke said [4] during a quarterly news conference after the Fed’s report was released. Analysts and central bank critics, already concerned about massive monetary “easing” in recent years, lambasted the idea that more money would solve the economic problems plaguing America.

Full article here [1]