- Gold notches largest one-day rally since June 1, 2012
- Fed cites strains in U.S. economy, high mortgage rates
- Bullion's gains outsize S&P, commodities, dollar tumbles
- Yellen front-runner for Fed chair nomination, seen bullish
- Coming up: US weekly jobless claims data Thursday
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Thursday, September 19, 2013
PRECIOUS-Gold soars 4.2 pct after Fed's surprise on stimulus
New York/London, Sept 18 - 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.
Spot gold was up 4.2 percent to $1,364.26 an ounce by 4:31 p.m. EDT (2031 GMT), its biggest one-day percentage gain since June 1, 2012. It rebounded about $70, or 5.5 percent, from a six-week low of $1,291.34 set earlier in the session.
U.S. Comex gold futures for December settled down $1.80 an ounce at $1,307.60 prior to the Fed's news.
The pace of trading was hectic after the Fed announcement, with volume at 240,000 lots, already at 50 percent above its 30-day average, set to be the strongest daily turnover in two months, preliminary Reuters data showed. Gold now rose above its 100-day moving average at $1,350, but is still some $70 below a four-month high at $1,433 set on Aug. 28.
YELLEN NOMINATION BULLISH
Before the Fed policy statement, bullion received a boost when a White House official said current Federal Reserve Vice Chair Janet Yellen is the leading candidate to replace Fed chief Ben Bernanke when he steps down.
Traders said that gold should benefit as the nomination of Yellen, a strong supporter of Bernanke's policies, should keep U.S. interest rates low for an extended period of time. "The next expected Fed Chairman, Yellen, is also committed to jobs creation and continued stimulus till there is improved data, which plays into higher gold prices," said Thomas Capalbo, a precious metals broker at New York futures brokerage Newedge.
Gold is down 18 percent year to date after the Fed earlier this year signaled it would start reining in its massive bond purchases.
Among other precious metals, silver rose 6.4 percent to $23.06 an ounce. Platinum was up 3 percent to $1,460 an ounce, while palladium rose 1.7 percent to $715.75 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by William Hardy, James Jukwey, Marguerita Choy and Andrew Hay)