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Thursday, November 1, 2007

Gold surges above $800 after Fed cuts rates - MarketWatch

Gold surges above $800 after Fed cuts rates - MarketWatch:
METALS STOCKS
Gold surges above $800 after Fed cuts rates
The precious metal rises to new high for the first time since 1980
NEW YORK (MarketWatch) -- Gold futures surged above $800 an ounce for the first time since 1980 on Wednesday after the Federal Reserve cut the fed funds rate by a quarter-point to 4.50% and said that the recent spike in commodity prices may put renewed upward pressure on inflation.
In after-hours electronic trading, gold for December delivery rose as high as $800.80 an ounce on the New York Mercantile Exchange, its highest level in nearly 28 years. The all-time high for a benchmark gold contract on Nymex stands at $875, set on Jan. 21, 1980.
Earlier Wednesday, before the Fed rate decision, gold rose $7.50 to settle at $795.30 an ounce, boosted by a record-setting rally in crude-oil futures.
"Bullish crude, bullish gold," said Zachary Oxman, a senior trader at Wisdom Financial. "I think the Fed had a choice, housing or inflation, and they chose housing. As such, you've got inflationary pressures running rampant despite what the government tells us."
"I'd peg real inflation at over 6% and I think that will continue to put pressure on the dollar and increase gold and crude prices," Oxman said in emailed comments.
Fed cuts rates
Warning that the housing correction will intensify and slow growth, the Federal Reserve gave the economy another shot Wednesday, cutting short-term interest rates by a quarter-point.
The Federal Open Market Committee said in a statement that while growth has been solid, "the pace of economic expansion will likely slow in the near-term, partly reflecting the intensification of the housing correction."
The FOMC said inflation risks remain. Core inflation readings have improved modestly, "but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation," the FOMC said. See The Fed.
Peter Grandich, editor of The Grandich Letter, said: "The wording in the Fed's statement suggests to me that they're going to at least pause for now and that could give the U.S. dollar the excuse to rally back a little in the near term."
"Despite this, the very large commercial short position on the Comex still has the possibility of leading to a big short squeeze causing gold to rise above $800," Grandich said in emailed comments.
Lower rates are intended to boost economic growth, which tends to benefit gold if it generates inflation pressures. Gold is often used as a safe-haven asset against inflation.
"If the 'buck' stops here, it is going to be difficult to go much higher than $800 at this time since the market has already priced in so much up to this time," said Jon Nadler, an analyst at Kitco Bullion Dealers, immediately after the Fed decision.
"I think the Fed has given all it has to give for now," Nadler said in emailed comments.
Crude rallies, dollar tumbles
Chart of GLD
Crude-oil futures closed up $4.15, or 4.6%, at a new record high of $94.53 a barrel on Nymex after U.S. crude inventories dropped surprisingly in the latest week to the lowest in two years and the Fed cut interest rates. Crude hit an intraday record high of $94.74 in electronic trading. See Futures Movers.
The dollar briefly rebounded before hitting fresh lows against the euro and sterling after the Fed cut rates.
The dollar index, which tracks the performance of the dollar against a basket of other major currencies, fell 0.2% at 76.61. See Currencies.
Also on Nymex, silver for December delivery gained 11 cents to end at $14.438 an ounce, January platinum rose $6.70 at $1,447.60 an ounce and December palladium gained $2.45 to end at $374.25 an ounce.
December copper edged down 0.85 cent at $3.4730 a pound.
Metals stocks surge
Indexes tracking mining and metals shares rallied on Wednesday. The Philadelphia Gold and Silver Index (XAU
phlx gold silver index capital-weight
Sponsored by:
XAU
)
surged 4.1% at 188.09 points. The CBOE Gold Index (GOX
CBOE Gold Index
Sponsored by:
GOX
)
rose 3.5% at 190.18 points and the Amex Gold Bugs Index (HUI
amex gold bugs index equal-$ weight
Sponsored by:
HUI
)
rallied 3.8% at 435.08 points.
As for sector exchange-traded funds, the StreetTracks Gold Trust ETF (GLD
streetTRACKS Gold Shares ETF
Sponsored by:
GLD
)
gained 1.6% at $78.62, the iShares Silver Trust ETF (SLV
ishares silver trust ishares
Sponsored by:
SLV
)
rose 1.8% at $143.60 and the Market Vectors-Gold Miners ETF (GDX
market vectors etf tr gold miner etf
Sponsored by:
GDX
)
surged 3.7% at $50.60.
Gold warehouse inventories fell by 9,835 troy ounces to stand at 7.3 million troy ounces, according to Nymex data as of late Tuesday. Silver inventories rose by 732,159 troy ounces to stand at 133.7 million troy ounces, while copper supplies were virtually unchanged at 19,570 short tons. End of Story
Polya Lesova is a MarketWatch reporter based in New York.

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