Gold News & Info

Source: Marketwatch

San Francisco— Gold futures extended their gains into the electronic session Wednesday following news that the Federal Reserved decided to keep overnight interest rates steady at 5.25%.

Futures prices for gold had ended the regular trading almost $8 higher — at their highest level in two months, finding support from strength in crude and some weakness in the U.S. dollar.

After regular futures trading ended, The Federal Open Market Committee on Wednesday kept its benchmark federal funds rate unchanged at 5.25% and made only modest changes to its policy statement.

"With the Fed keep rates steady and reiterating their concerns on inflation, this combination is providing some extension of today's earlier gold rally higher," said Peter Spina, chief investment strategist at GoldSeek.com.

"The market reaction is putting pressure on rates which is resulting in weaker bids for the U.S. dollar," he said.

But "the announcement appears to be what the market was expecting out of the Fed, no real big surprises here," he said.

Shortly after the announcement, Gold for February delivery traded at $653.10 an ounce in electronic trading. The contract had climbed $7.80 in the regular session to close at $652 an ounce on the New York Mercantile Exchange.

Prices only slightly pared gains by the close of the regular session, after trading as high as $655.50 — the contract's highest intraday level since Dec. 1.

February gold finished last month at $638 so it ended January with a gain of 2.2%.

Most of the trading volume has now moved to the April contract, which closed up 1.2%, or $7.70, at $657.90 an ounce. It's ended 2.1% above its Dec. 29 close.

In electronic trading April gold last traded at $659.90 an ounce.

Gold can "now go ahead and finish its second attempt to vault over $655, barring any unexpected dollar strength in coming sessions," said Jon Nadler, an investment-products analyst at bullion dealers Kitco.com.

"Then again, the previous profit-taking did take place from the same values, all the way down to the $640s," he said.

All in all, the FOMC announcement was "a bit of a yawn and perhaps not worth the several days of holding back for traders," he said.

For the gold market, "the focus remains [on] $675/$676," said Spina.

"With oil nearing $60 again and a vulnerable U.S. dollar, we could be nearing another explosive leg higher," he said. "Until that time arrives, gold will be well supported on pullbacks."

The market believes that no raise in interest rates is bearish for the dollar and positive for gold, said Julian Phillips, an analyst at GoldForcaster.com, ahead of the FOMC's announcement. "But remember, it is the dollar and oil that the U.S. market follows as we can see again."

Crude-oil futures climbed above $58 a barrel Wednesday as traders focused on the first decline in distillate inventories in seven weeks following the recent cold snap.

In currencies trading, the dollar moved lower against its major European rivals.

Gains in gold and weakness in the dollar Wednesday came despite conflicting U.S. economic news.

The U.S. economy shook off a summer slump and surged ahead at a faster-than-expected 3.5% annual growth rate in the fourth quarter, the Commerce Department estimated Wednesday.

But in January, the economy in the Chicago region contracted, according to a survey of purchasing managers of firms based in the region.

IMF proposes gold sales

The market also appeared to be mostly unfazed by report released Wednesday afternoon, in which the International Monetary Fund proposed the sale of about 400 metric tons of gold to help fund its activities. The current market value of the gold amounts to $6.6 billion, it said.

"Investment profits from its sale could yield a real return of some [$195 million] a year," the report said. But the "limited gold sales should … be coordinated with current and future central-bank gold agreements so as not to add to the volume of sales from official sources," it said.

The proposal is "not a done deal," emphasized Kitco.com's Nadler.

But the news is significant "because 400 tonnes is about what all central banks can sell in a year (500T) — thus it would double official sector disposals in the marketplace," he said.

Then again, GoldSeek.com's Spina questioned whether such a proposal would work.

"The past attempts always came to the same argument that the IMF will never get support from the U.S. government to proceed with such an action," he said.

And "people should understand this point clearly: the IMF has no gold reserves," he said. "All IMF gold is owned by member countries and pledged to them. That is why the U.S. Congress must approve any sales of 'IMF gold', which really is the gold of the citizens of the U.S."

Indeed, "previously-floated proposals to sell gold for debt relief were met with resistance