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Gold Pushes Higher on QE3

SOURCE:[Gold Investing News] - US Federal Reserve Chairman Ben Bernanke ended weeks of speculation about the prospect of further monetary stimulus for the United States economy, announcing on Thursday a third round of quantitative easing (QE3).

The Fed said it will start buying $40 billion worth of mortgage debt each month, starting this Friday, as it seeks to boost economic growth and reduce unemployment.

The market’s reaction was swift and overwhelmingly positive, especially for precious metals, which act as a hedge against the inflationary pressure brought about by QE measures, which increase money supply. Gold for December delivery rocketed to a seven-month high of $1,775 an ounce — $240 higher than a 2012 low reached in May. Before the announcement, December gold futures were at $1,727.40, a difference of $47.60. Spot gold reached a high of $1,770.10 before slipping back slightly to close the trading day at $1,767.20 per ounce.

Silver also had a dramatic spike, heading over a dollar higher to $34.46 within minutes of the announcement, against the $33.31/oz spot price close on Wednesday.

Major gold producers enjoyed a significant lift in their stock prices. The NYSE Arca gold producer index rose 4.1 percent, its highest level since February. Goldcorp (NYSE:GG,TSX:G) climbed 5.4 percent to close at $45.41 in New York on double average trading volumes. Number one gold producer Barrick (NYSE:ABX,TSX:ABX) was up 4.8 percent, Yamana Gold (NYSE:AUY,TSX:YRI,LSE:YAU) leapt 6 percent and Newmont Mining (NYSE:NEM) vaulted 5.5 percent.

Issuing a statement at the end of a two-day meeting, the Federal Open Market Committee said it will continue to purchase mortgage-backed securities as long as the labor market does not substantially improve. Bernanke has called the US employment rate, stuck above 8 percent since February, “a grave concern.”

The Fed also said it will extend low interest rates until the middle of 2015 and will continue Operation Twist, a program that involves the Fed swapping $667 billion of short-term debt with longer-term securities in order to lengthen the average maturity of its holdings.

So how high could gold go? Kitco quotes Frank Lesh, a trader and futures analyst at FuturePath Trading, as saying that the Fed move, being inflationary, “is supportive for the gold market” and could keep gold rallying for a while. However, Lesh also believes profit taking could occur soon now that the highly-anticipated QE3, along with the European Central Bank bond purchases announced last week, has occurred.

“There’s been a lot of money made in gold recently. People will take their profits on the move. There will be a pullback at some point. It’s always hard to say exactly when that happens, but it will happen,” Lesh said.

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