Gold Rises as Fed Cites Risk From Global Economy Slowdown

San Francisco (Oct 8)  Gold prices rose, heading for the biggest three-day rally since June, after Federal Reserve policy makers said a global economic slowdown poses potential risks to the U.S.

A number of participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released today in Washington. The dollar fell against a basket of 10 currencies, erasing earlier gains, and U.S. equities rose on speculation that the Fed will keep interest rates lower for a longer period.

“We’ve seen a fundamental shift here from the Fed where everything was leaning toward being hawkish a month ago to seeing the Fed a little more cautious and open to keeping monetary policy relatively loose for an extended period of time,” Rob Kurzatkowski, a senior commodity analyst at optionsXpress, a Chicago-based brokerage unit of Charles Schwab Corp., said in a telephone interview. “This is exactly what the gold bugs were looking for in terms of a reprieve.”

Gold for immediate delivery rose 0.8 percent to $1,218.62 an ounce at 2:17 p.m. New York time after earlier dropping as much as 0.3 percent. In three days, the price has climbed 2.3 percent, the most since June 23, while the dollar headed for the biggest slump in more than a year.

The FOMC last month retained a pledge to keep interest rates near zero percent for a “considerable time” after it concludes an asset purchase program that is due to end after its October meeting.

Dollar Rally

In the third quarter, gold futures on the Comex in New York fell 8.4 percent, the first decline in 2014, as the dollar jumped the most in six years. Speculation mounted that the Fed is closer to raising interest rates for the first time since 2006.

Before the Fed minutes were released, gold futures for December delivery fell 0.5 percent to close at $1,206 on the Comex.

On Oct. 6, gold touched $1,183.30, the lowest this year. As of Sept. 30, speculators pared bets on a rally for the seventh consecutive week, the longest retreat since 2010, government data showed on Oct. 3.

Gold climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent, boosting inflation concerns. In 2013, futures plunged 28 percent to halt a 12-year rally as some investors lost faith in the metal as a store of value.

Silver for immediate delivery rose 1 percent to $17.36 an ounce after falling as 0.7 percent. The contract for December delivery fell 1 percent to settle at $17.064 before the release of the minutes.

On the New York Mercantile Exchange, palladium futures for December delivery rose 1.2 percent to $796.45 an ounce. In three days, the price jumped 5.6 percent, the most since July 2, 2013.

Palladium fundamentals remain attractive amid a structural deficit, Morgan Stanley analyst Joel Crane said in a report

Platinum futures for January delivery rose 0.4 percent to $1,266.90 an ounce.

Source:  Bloomberg