The benchmark contract surged above $800 for the first time since 1980 on Wednesday, extending its recent rally after the Federal Reserve said that the recent spike in commodity prices may put renewed upward pressure on inflation. The U.S. central bank made the comment as it cut the federal funds rate by a quarter of a percentage point, to 4.50%.
In after-hours electronic trading, gold for December delivery rose as high as $802.50 an ounce. The all-time high for a benchmark gold contract stands at $875, set on Jan. 21, 1980.
Earlier Wednesday, before the Fed's rate decision, gold rose $7.50 to settle at $795.30 an ounce on the New York Mercantile Exchange, boosted by a record-setting rally in crude-oil futures.
In Thursday dealings in London, the front-month gold contract encountered modest selling pressure and stood lately at $794.40 an ounce, off 90 cents.
James Moore at TheBullionDesk.com said he anticipates that gold is "likely to find further resistance ahead of the psychological $800 mark, particularly given the scale of option exposure at this level."
Fed cuts rates
"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.
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
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.
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