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Record Closing For Gold - And Then Climbs Again After Fed Policy Statement

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EDITOR NOTE:  Gold already hit record highs before the FOMC announcement. Everyone was expecting the Fed to keep rates near zero, so once it made it’s statements, assuring the markets that it’s maintaining its near-zero policy, gold jumped even higher. It’s now within reach of 2000 per ounce. Looking ahead, we see no reason for the Fed to deviate from its current course, especially amid coronavirus uncertainties. So what that might mean for gold and silver--a potential “supercycle”? Sure looks like it.

Gold futures tallied a ninth gain in a row on Wednesday to settle at another record, then moved even higher after the Federal Open Market Committee reiterated plans to keep interest rates near zero until the economy sees further improvement.

In its statement after two days of talks, the Fed noted economic activity and jobs “have picked up somewhat in recent months” while pledging again to use its full range of tools to support further improvement.

“The Fed came out with no surprises, and basically told the market it would be business as usual going forward — or unusual as the case may be,” said Brien Lundin, editor of Gold Newsletter. “With this one, small element of uncertainty removed, gold responded well and resumed its rally.”

Against this backdrop, gold for August delivery GC00, -0.30% GCQ20, -0.32% was at $1,958.40 an ounce in electronic trading shortly after the Fed statement. It posted a gain of $8.80, or nearly 0.5%, Wednesday to settle at a record of $1,953.40 an ounce on Comex ahead of the Fed news.

Gold had also ended at a record $1,944.60 an ounce on Tuesday. The stretch of ninth session gains is the longest such streak since the 10-session climb ended in January.

The statement came ahead of Fed Chairman Jerome Powell’s news conference Wednesday. Investors didn’t expect any major tweaks to policy, but look for Powell to maintain a dovish tone, signaling the central bank is committed to maintaining monetary loose policy and is prepared to do more if needed to avert a further downturn.

The central bank Wednesday said it would keep interest rates near zero until employment recovers and inflation picks up.

“The recent spike in coronavirus cases have prompted re-imposition of restrictions” and the number of new claimants for unemployment benefits is at over one million, said Sanjeeban Sarkar, commodities editor at The Economist Intelligence Unit.

“These factors bode well for the precious metals market” and spot gold prices going forward, he told MarketWatch. “Low interest rates boost gold purchases.” However, with the Fed’s hand tied at the moment, “the decision to leave rates unchanged is mostly priced in.”

The U.S. dollar extended its decline against currency rivals in the wake of the Fed statement, with the ICE U.S. Dollar DXY, -0.20% down 0.4% in Wednesday dealings, providing further support for dollar-denominated gold prices.

Meanwhile, September silver SIU20, -3.68% added 2 cents, or 0.09%, at $24.321 an ounce. Prices, which settled Monday at their highest since April 2013, trade roughly 25% higher year to date.

Silver has rallied “for many of the reasons that gold is, in that they are both precious metals that are sought as a refuge in times of economic uncertainty and financial market volatility,” said Jordan Eliseo, manager, listed products and investment research at The Perth Mint.

“Unlike gold which is seen more as a monetary metal by the market, silver is also widely used in industry, which is one of the reasons why price movements (both to the upside and downside) can often be more volatile than the movements seen in gold itself,” he told MarketWatch.

Looking ahead, “there are no guarantees history will repeat itself, but a growing number of investors are positioning their portfolios to benefit should silver outperform gold in the years to come, as it has over the past three months,” said Eliseo.

Originally posted on MarketWatch

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