New Gold record after Fed cuts
By Polya Lesova
Gold futures surged to
a new record high of $942.20 an ounce on
Wednesday, after the Federal Reserve cut the fed
funds rate by 50 basis points to 3.0%, meeting
Gold for April delivery soared as high as
$942.20 an ounce in electronic trading on the
New York Mercantile Exchange, hitting a new
record high. The contract was last up $4.20 at
$935 an ounce.
Before the Fed decision, gold ended down $4.50
at $926.30 an ounce in regular trading.
The Federal Reserve's 50 basis points rate cut
"sets the stage for a further rally in gold, but
the upside target remains near $940 and probably
not much beyond $950 at the moment," said Jon
Nadler, senior analyst at Kitco Bullion Dealers.
"Conditions are becoming overbought, and South
African production problems have been addressed
for the time being," Nadler said.
The Federal Reserve decided to cut interest
rates by a half-point and signaled that the door
remains open for more cuts, indicating it's
concerned about the economic outlook.
The bank also cut its discount rate, the
interest it charges on direct loans it makes to
banks, by a half-point to 3.5%. The Fed said
that downside risks to growth remain and that it
would act in a timely manner to address risk.
See The Fed.
The latest rate cut comes on the heels of an
emergency rate cut of 75 basis points that the
central bank delivered on Jan. 22.
"The Fed remains behind the curve, having to cut
in a hurried series, instead of a
well-orchestrated cycle of adjustments that
should have been initiated when the credit
problem first emerged," Nadler said. "There is
the risk of over-accommodating, and inflation
also remains a threat."
The dollar weakened against most of its major
counterparts after the Fed rate cut. The dollar
index, which tracks the performance of the
greenback against six other major currencies,
declined 0.6% at 75.125. See Currencies.
"Before this easing cycle is over, we expect the
Federal Reserve to bring US interest rates down
to at least 2.50%," said Kathy Lien, chief
strategist at Forex Capital Markets LLC.
"If the economy does not improve, interest rates
could realistically return to 1%," Lien said.
"As a result, the US dollar will not escape
The U.S. economy slowed sharply in the fourth
quarter, growing at the weakest pace since the
economy was pulling out of recession in 2002,
the Commerce Department reported on Wednesday.
The 0.6% annualized growth rate in gross
domestic product was lower than the 1.1%
expected by economists surveyed by MarketWatch.
"I think that we will all be snapped back into
reality when first-quarter GDP comes in either
flat or negative," said Zachary Oxman, a senior
trader at Wisdom Financial.
"I'd look for gold to continue to accumulate and
run up to the $933.5 resistance level in the
April contract," Oxman said. "Watch for funds
and speculators to continue to buy into dips and
for the market to be strongly supported at
Employment in the U.S. private sector grew by
130,000 jobs in January, according to the ADP
employment report released Wednesday. Adding in
some 25,000 government jobs typically added but
not covered by the ADP report, it suggests
non-farm payrolls grew by about 155,000 in
January - more than double the 70,000 economists
expected before the report. See Economic Report.
Also on Nymex, other metals prices were mixed.
March silver finished down 4 cents at $16.760 an
ounce in regular trading, but rebounded after
the Fed rate cut and was last up 10.50 cents at
April platinum ended down $34.50 at $1,687.40 an
ounce and March palladium dropped $2.50 at
$390.80 an ounce. March copper declined 7.25
cents at $3.2265 a pound.
Metals stocks rise.
Indexes tracking mining and metals shares rose
Gold warehouse inventories were little changed
at 7.5 million troy ounces as of late Tuesday,
according to Nymex data. Silver stockpiles rose
to 135 million troy ounces, up 14,276 troy
ounces, while copper supplies were unchanged at
13,978 short tons.