Gold & Silver Rise on FED’s Unlimited Money Printing Plan

September 14, 2012 at 07:25

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Gold rose to a six-month high on Friday, extending a 2-percent rally from the previous session when the Federal Reserve announced a new round of stimulus measure, which could add to the risk of inflation down the line and enhances gold’s appeal.

Other precious metals widely used in industrial applications also climbed to their highest in about six months, encouraged by a boost of risk appetite after the Fed launched an open-ended debt buying program and pledged to keep interest rates near zero until at least mid-2015.

Cash gold is on course for a 2.1-percent gain this week — a fourth week of consecutive rises, as investors have been encouraged by central banks’ latest push to promote global growth.

Bond-buying, effectively cash printing, raises the inflation outlook and increases gold’s appeal as a hedge against rising prices.

“The Fed’s move will flood the market with liquidity, which will consequently push up inflation and drive investors to assets known to be good hedges, such as gold and silver,” said Li Ning, an analyst at Shanghai CIFCO Futures.

“At least in the short- to medium-term, the Fed’s action will provide solid support for gold and help it test $1,800, or even $1,900.”

Holdings of SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, inched up 0.2 percent on the day to 1,292.432 metric tons by September 13.

The dollar index .DXY dropped to a four-month low, helping attract gold buyers holding other currencies.

Silver rallied to a six-month high of $34.92 an ounce earlier, before easing to $34.75. It was headed for a 3.2-percent weekly rise, extending a winning streak to a fourth week.

“Silver is poised to test the next resistance level at $35.4,” said a Shanghai-based trader, “The sentiment remains bullish, as many investors are just entering the market after confirmation of the QE3 overnight.”

The recent rally, which has lifted silver by about 25 percent over the past month, is suppressing short-term physical demand, weighing on the discount of spot silver versus Shanghai silver, he added.

“Usually we see a discount in spot of 10 to 20 yuan, but these days it is 60 to 70 yuan.”

Shanghai silver rallied more than 5 percent to 7,290 yuan per kg ($35.88 an ounce).

However, physical silver consumers may be forced to buy at high prices if the upward trend continues.

Spot platinum jumped 2 percent to a six-month high of $1,712.24 an ounce, as concerns about supply deepened with labor unrest in top producer South Africa’s mining sector. The metal is headed for a 8-percent rise on the week, its biggest weekly gain since last October.

The gold-platinum spread narrowed to just above $65 an ounce, a level unseen since April, as platinum outperformed gold in recent weeks.