Gold rose on Wednesday as its inflation-hedge appeal received a boost after the US 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. Analysts said the move is bullish for gold because it suggests that the US 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 pm (2009 GMT) US 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. Silver, which tends to be more volatile than gold, rose 1.7 percent to $33.51 an ounce. 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.