INVESTMENT DEMAND to buy gold continued to push wholesale prices higher Thursday morning in London, after the US Federal Reserve vowed to keep Dollar interest rates at zero until at least 2014 – one year later than previously promised.
The global market's AM Gold Fix here in London was set at $1713 per ounce, more than 3.8% higher from Wednesday afternoon and the highest level since Dec. 8th.
The most-active US gold futures contract yesterday saw its heaviest volume in six weeks according to Amanda Cooper at Reuters, while investors wanting to buy gold exposure added 9 tonnes to the holdings of the New York-listed SPDR Gold Trust, whose assets rose to $69.3 billion by value.
"People are still very under-invested in gold, and so there is a huge scope of that increasing," reckons UniCredit analyst Jochen Hitzfeld in Munich, speaking to Bloomberg.
"The [Fed's] announcement prompted investors to buy gold as a hedge against inflation," says the Associated Press, "which investors fear could be a result of the its extended low-interest rate policy."
Five-year US Treasury yields touched a new record low of 0.75% last night. US consumer-price inflation was last pegged at 3.0% annually.
All other tradable assets also pushed higher Thursday morning, sending Japanese, German and UK government bond yields lower as crude oil added 1%, copper rose 1.8%, and the MSCI index of emerging economy stock markets gained 1.3%.
Silver bullion prices today rose 5.3% from Wednesday's London Fix to trade at $33.35 per ounce, a better than 2-month high.
Hong Kong stocks added 1.6% on their first trading day after the Lunar New Year holidays.
"Because the low US interest rate will continue to 2014, I think it gives good support to stock and gold markets," Reuters quotes Ronald Leung of Lee Cheong Gold Dealers.
"But Hong Kong is still in a holiday mood. I don't expect too much activity on our side for the whole week."
"We would expect prices to ease off as the euphoria subsides," says Marc Ground at Standard Bank in London, reporting "some profit-taking already overnight in Asia, which kept precious metals from rallying further."
Gold traded on the Hong Kong Gold Exchange rose 3.4% today, as did Tokyo gold futures, which jumped to their highest level against the Japanese Yen in 7 weeks.
Meantime in Europe on Thursday, the Greek press reported that private-sector investors were nearing a deal with Athens' officials over the interest rate to be paid on new bonds, issued to compensate them for a 50% or greater write-down of their existing positions.
Various reports put the rate between 3.75% and 4.0% per year.
The Euro currency today touched its best level vs. the Dollar in 5 weeks at $1.3170, up by 4.3% from last week's 16-month low.
Eurozone investors looking to buy gold, however, also saw it rise in price to break €42,000 per kilo – a level first breached in mid-August and barely 5% below Sept's all-time high.
"Gold finally made the breakout," says one London dealer in a note. Thanks to the Fed's announcement, "The blue touch-paper was lit."
Formally announcing a 2% annual target for US consumer-price inflation, Fed chairman Ben Bernanke said in his quarterly press conference on Wednesday that "[Our] framework makes very clear that we need to be thinking about ways to provide further stimulus if we don't get improvement in the pace of recovery and a normalization of inflation."
"It sounds like the finger is on the trigger [for more quantitative easing]," reckons one money-market economist quoted by Reuters.
"Financial repression," says Bill Gross, founder and co-manager of the $1 trillion Pimco bonds fund-management group on Twitter, pointing to the loss of real value imposed on savers by sub-zero returns after inflation.
"QE 2.5 today, QE 3, 4, 5... lie ahead."
"[The Fed's policy committee] have now locked themselves in to [zero rates until] at least late 2014," says a note from RBC analysts. "This shows you the level of worry."
"The median [inflation] expectation of the committee may be lower than we had expected," says Goldman Sachs.
"Indeed, a significant proportion of the committee may project the first rate hike in 2015 or later."
Gold price chart, no delay | Buy gold online at live prices
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
London Gold Market Report
from Adrian Ash
Thurs 26 Jan., 08:30 EST