(Bloomberg News) Gold rallied to a record for a third straight day after the Federal Reserve pledged to keep U.S. interest rates at historic lows at least mid-2013, boosting demand for the metal as an alternative asset.
Fed policy makers said yesterday that they discussed a range of policy tools to bolster the economy, fueling speculation the central bank may consider a third round of quantitative easing through bond purchases to revive a recovery described as "considerably slower" than anticipated. Gold has rallied 25 percent this year.
"Any policy response will contribute to another wave of global currency debasement and create further imbalances in the markets," Scott Gardner, the chief investment officer at Panama-based Verdmont Capital SA, said in an e-mail. "Gold will hold its value."
Gold futures for December delivery climbed $35.50, or 2 percent, to $1,778.50 an ounce at 10:53 a.m. on the Comex in New York, after reaching $1,782.90, the highest ever.
Prices have rallied 7.6 percent since Standard & Poor's cut the U.S. credit rating by one level from the top AAA grade on Aug. 5. The S&P announcement, combined with Europe's sovereign- debt crisis, spurred a rout in global equities and stoked concern that the U.S. may lapse into another recession.Failed To Convince
The dollar dropped for a fourth day against the yen, declining to 76.5 yen from 76.96 in New York yesterday, as the Fed's pledge for record-low rates failed to convince investors that global growth will be sustained.
"Rising interest rates tend to detract from gold as investors looking for yields will look elsewhere," Darren Heathcote, the head of trading at Investec Bank (Australia) Ltd., said by telephone from Sydney. "As long as rates stay low," he said, "it will help to support gold, if not push it higher in due course."
Bank of America Merrill Lynch, in a report dated yesterday, raised its 12-month gold-price forecast to $2,000 on the increased chance of further quantitative easing.
"The overall problems in the U.S. are far from over, and the appetite for haven assets like gold is very strong," said Viral Shah, vice president at Geojit Comtrade Ltd. in Mumbai. Investors "want to opt out from the other asset classes, and that is always going to be to the benefit of gold," he said.
Silver futures for September delivery rose 56.7 cents, or 1.5 percent, to $38.45 an ounce on the Comex.
Platinum futures for October delivery fell $3.10, or 0.2 percent, to $1,753.30 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery retrated $6, or 0.8 percent, to $728.55 an ounce on the Nymex.