GOLD PRICE NEWS – The gold price climbed $13 to a new all-time high of $1,291 before closing at $1,289 as the latest Fed decision fueled another rally in the price of gold. The spot gold price recovered from a low of $1,272 this afternoon to reach its new record high after Chairman Ben Bernanke and the Federal Reserve reiterated their dovish stance and explicitly stated their willingness to expand the Fed’s monetary policies, if necessary.
The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, hit a new all-time high of per share in concert with the price of gold. The Philadelphia Gold & Silver Index (XAU), a composite of the world’s largest gold and silver companies, rebounded from a 2.6% decline to finish higher by 0.6% at 195.58. With today’s gold price rally, the yellow metal and XAU extended their year-to-date gains to 17.7% and 16.2%, respectively. Moreover, the gold price is on track for its tenth consecutive year of gains, fueled in large part by the currency debasement inherent in central banks’ easy monetary policies.
In the FOMC statement released this afternoon, the Federal Reserve repeated the theme from its previous previous statements – namely the need for “exceptionally low” interest rates rate for an “extended period.” The Fed cited the slowing pace of the economic recovery, along with employers’ reluctance to hire, and the “depressed level” of housing starts as factors in continuing its dovish monetary policies. As for inflation, the Fed once again stated that it is “likely to remain subdued for some time” as considerable resource slack continues to restrain cost pressures.
In light of the weakening economic environment, speculation had arisen that the Fed may expand the quantitative easing program announced in August, whereby the central bank will over time convert the $200 billion of agency debt and $1.25 trillion of agency mortgage-backed securities on its balance sheet into U.S. Treasuries. The purchase program has helped propel the gold price to new all-time highs this month, and many investors pointed to the program’s expansion as the next catalyst to push the price of gold to a new record high. “Helicopter Ben,” however, chose not to install any additional printing presses, as the Fed decided to only maintain the previously announced level of Treasury purchases.
Significantly, today’s announcement stated the Fed is “prepared to provide additional accommodation if needed to support the economic recovery.” It is likely this language was the primary driver of today’s gold price rebound, as the Fed once again stressed that it is willing to expand both the size and duration of its easy monetary policies to stave off the risks of deflation. Bernanke has thus once again indirectly proven to be one of the best catalysts for a higher gold price.