Gold and silver rose after new stimulus announcement

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CORONAVIRUS IMPACT

Gold and silver rose to six-month highs on Thursday. This happened after the Federal Reserve’s announced round of bond buying caused the US dollar to retreat.

The US central bank announced that it would purchase $40 billion of mortgage-backed securities each month and added that it could continue those purchases if the U.S. employment market doesn’t recover. The Fed also noted that it would continue its Operation Twist program, under which it sells short-term bonds and buys longer-term bonds. It this way it attempts to lower borrowing rates.

Gold and other precious metals can benefit from easy-money policies similar to the ones revealed on Thursday as investors look for a safe-haven because of potential inflation. Such policies by the Federal Reserve also can have negative impact on the dollar by igniting demand for dollar-denominated gold.

Gold for September delivery gained $38.50, or 2.2% and stopped at $1,769.10 a troy ounce on the Comex division of the New York Mercantile Exchange. This is the highest settlement since Feb. 28. The most traded contract, for December delivery, increased to $38.40, or 2.2%, to land at $1,772.10.

The September silver contract climbed 4.5% to stop at $34.716 a troy ounce, which was the highest settlement since March 1.

The outlook of the Fed for low interest rates to mid-2015 remained unchanged. Low rates can urge investors to seek higher yields into precious metals.

Trading in gold was halted by Comex operator CME Group Inc. (CME) twice on Thursday after the release of the statement of the Fed. A CME spokesman noted that the exchange paused trading for less than a minute at 12:14:47 p.m. EDT, and again at 12:31:20 p.m. EDT. The exchange employs such trading halts to prevent big price fluctuations.

The Fed’s move was widely expected after Chairman Ben Bernanke and other officials implied that the central bank was willing to act in order to boost economic growth in the U.S.. Gold futures gained 9% between Aug. 2 and Wednesday’s close.

Analysts expect the day’s gains to result in the gold price going higher in the weeks to come.

This summer investors were worried about the global economy and preferred the U.S. dollar at the expense of precious metals. That resulted in some rumors that gold’s 11-year bull run could end, and speculators became cautious toward the metal.

Mr. Klopfenstein said that after the Fed’s announcement many skeptics might change their position and added that gold is in a good place right now.

Moreover, platinum gained an additional price boost as labor agitations in South Africa continued for four weeks after a violent outbreak at a mine owned by Lonmin PLC.

On Thursday, platinum mine workers called for a nationwide strike across the sector to begin on Sunday. According to chemicals and precious metals company Johnson Matthey, 75% of the world’s platinum comes from South Africa.

Platinum for October delivery settled up 1.8% at $1,679.50 a troy ounce.

Demand for physical platinum could surpass supply next year according to TD Securities. It predicts that prices would increase above $1,825 a troy ounce in the second quarter of 2013.

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