New York gold futures gained 2.8% as inflation talk picked up steam after the Fed and world central banks cut interest rates in an emergency announcement on Wednesday in an attempt to ease the credit crunch. Silver moved higher while oil and platinum fell.
Investors find gold more attractive as inflationary pressures on the dollar rise. While those pressures have recently cooled somewhat, the cut in interest rates could change inflation to a more menacing picture in the coming months.
"Coordinated central bank aggressive interest rate cuts should lead to gold surging in value in the coming months" as "currency devaluations look increasingly likely," said Mark O’Byrne, executive director at Gold and Silver Investments.
In a breakdown of Wednesday’s oil and precious metal numbers…
November crude fell below the $90 barrier after peaking above it Tuesday. Oil lost $1.11, or 1.6 percent, to settle at $88.95 per barrel.
December silver climbed 39 cents to close at $11.77 an ounce. January platinum lost $8.60 to end at $1012.10 an ounce. Gold for December gained $24.50 to close at $906.50 an ounce.
"The US Fed, the ECB, and the Banks of England, Switzerland, Canada, and Sweden’s Riksbank got a hold of a gigantic kitchen sink this morning. They aimed it squarely at the global credit crisis which is now spreading faster than the Andromeda Strain and hoped to deal it a knockout blow," said senior analyst Jon Nadler at Kitco Bullion Dealers.
"Gold continued to benefit from the flight to safety and liquidity. However, its battle to overcome the $925 resistance point appears difficult thus far, even in the wake of these apparently desperate attempts by officialdom to keep the fabric of the markets from ripping apart," continued Nadler.
Gold typically follows oil’s direction and moves opposite to the U.S. dollar, as a weakened dollar encourages investors to buy gold, also considered a hedge or safe-haven during times of high inflation and economic uncertainty.