A half-percentage point cut in the Federal Reserve discount rate sent US gold futures and other precious metals sharply higher early on Friday, a day after global credit fears led to a broad-based sell-off in the commodities sector and other financial markets.
"It will help gold. Gold was being sold because investors needed money, so it could put support in gold. We have to see what happens overseas," Jonathan Jossen, an independent floor trader, said from the COMEX floor in New York.
At 10:12 am EDT (1412 GMT), most-active gold for December delivery on the COMEX division of the New York Mercantile Exchange was up $10.4, or 1.6 percent, at $668.50 an ounce, trading between $655.50 and $674.50. Silver rebounded more than 3 percent, while the platinum group metals also posted solid gains.
The US Federal Reserve on Friday cut the discount rate governing direct Fed loans to banks by a half-percentage point in a surprise move aimed at keeping credit flowing and calming jittery global markets. In a statement announcing the decision, which had no impact on the benchmark federal funds rate - the Fed's main economic policy lever - the central bank said downside risks to growth had increased "appreciably." "Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth," the Federal Open Market Committee said.
George Gero, vice president of RBC Capital Markets Global Futures in New York, said the Fed's move to cut the discount rate could put pressure on the dollar and should remind investors about the threat of inflation, both bullish factors for gold.
"Even with large selling (on Thursday), COMEX open interest indicates traders may return and bargain-hunt," Gero said. Gero noted that open interest for the front-month gold contracts was over 200,000 lots. With that, Thursday's sellers could become future buyers, he said.
US stocks were broadly higher in morning trade on Friday after the Fed's move. The blue chip benchmark Dow Jones industrial average was about 1.5 percent higher, while the broad-based Standard & Poor's 500 index was up about 2 percent.
European stocks also rallied on Friday following the Fed's rate cut. But the Japanese stock market plunged with its benchmark index Tokyo's Nikkei down more than 5 percent.
On Thursday, December gold sank 3.2 percent and other precious metals also plummeted amid a global rout in equities markets. Commodities experts said that fund managers sold gold during the stock market's meltdown, taking advantage of bullion's relatively deep market to raise cash to cover losses outside the commodity sector.
Spot gold was quoted at $658.40/659.20 an ounce, compared with $650.50/651.10 late Thursday. The London morning gold fix was $653.00. Other precious metals also recovered after posting steep losses on Thursday. COMEX September silver rose 40.5 cents, or 3.5 percent, to $11.90 an ounce, dealing between a wide range of $11.490 and $12.015. Silver nose-dived more than a dollar on Thursday.
Spot silver was quoted at $11.85/11.90 an ounce, compared with $11.75/11.80 late Thursday. London silver was fixed at $11.69. NYMEX October platinum climbed $12, or 1 percent, to end at $1,242 an ounce. Spot platinum fetched $1,235.50/1,242.50 an ounce. September palladium was up $5.4, or 1.7 percent, at $333.25 an ounce. Spot palladium was quoted at $330.75/334.75 an ounce.