16 November 2009

Gold Price Skirts $1,100

Wall Street Journal

Gold prices neared $1,100 in after-hours trading after the Federal Reserve's post-meeting statement suggested that U.S. interest rates won't be going up soon which keeps potential longer-term inflation a worry among traders.

The statement came out after the end of pit trading on the Comex division of the New York Mercantile Exchange, where the settlement price is set.

In pit trading, the nearby but lightly traded November futures firmed $2.40, or 0.2%, to settle at $1,086.70, a record settlement for a front-month contract. December gold rose $2.40 to $1,087.30 an ounce, a record settlement for the most-active month contract.

Then, about an hour after the Fed statement, in electronic trading after hours, gold for December delivery traded as high as $1,098.50 an ounce.

"The fact that everything remains the status quo is a positive environment for gold," said Dave Meger, director of metals trading at Vision Financial Markets.

There had been some worries that the Fed might change its rhetoric enough to be seen as signaling a hint of possibly tightening interest rates down the road.

"Any type of tilt to that effect could have supported the dollar and hence dented the gold price," Mr. Meger said. "Obviously that didn't happen. So any expectations to that effect are no longer a concern and that obviously gives a green light to the gold market to continue forward."

The Fed said conditions "are likely to warrant exceptionally low levels of the federal-funds rate for an extended period."

Continued low interest-rates mean further pressure on the dollar, especially since some nations have started raising rates, said Joe Foster, portfolio manager with Van Eck International Investors Gold Fund.

"Anything that is negative for the dollar is good for gold," he said. "Then there are the inflationary implications. The longer they maintain these historically easy monetary policies, the more that stokes potential for inflation somewhere down the road."

Gold had gained before the Fed statement on a second day of buying in the wake of news that the Reserve Bank of India has bought 200 metric tons of the metal from the International Monetary Fund who obviously know how to sell gold.

The news of the Indian purchases from the International Monetary Fund supported the market since it was seen as both reflecting strong central-bank demand and alleviating worries that the IMF's planned sale of 403.3 metric tons would hurt the market.

Central banks collectively had been net sellers of gold for more than a decade, said Fred Jheon, managing director of U.S. product development for ETF Securities.


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