Gold, silver rise as Fed keeps interest rates low

AP News
Posted: Apr 27, 2011 5:15 PM
Gold, silver rise as Fed keeps interest rates low

Gold rose Wednesday after the Federal Reserve said it would keep its key interest rate near zero, stoking fears of a weaker dollar and inflation.

Gold for June delivery rose $13.60 to settle at $1,517.10 an ounce after the Fed made its announcement and continued rising in after-market trading. Silver for May delivery rose 90.8 cents to settle at $45.958 an ounce.

While the Fed said it would end its program of buying Treasury bonds on schedule, its policy of supporting the economy through low interest rates prompted traders to buy gold and silver futures as a hedge against inflation, said Carlos Sanchez, an analyst with CPM Group in New York.

To nurture the economic recovery, the Fed said Wednesday it will hold its key interest rate at a record low near zero for an "extended period." The Fed has kept rates at ultra-low levels since December 2008.

The Fed also said it's continuing a separate support program. It's reinvesting about $17 billion a month in proceeds from its portfolio of mortgage securities to buy Treasury debt. That should help keep rates low on mortgages and other consumer loans.

As low interest rates keep money cheap, it is reversing a slump in gold and silver prices from earlier this week. Much of the drop-off in precious metals was driven by traders who wanted to cash in on high prices, Sanchez said. Now investors are buying up the contracts in light of the weaker dollar.

Other metals were mixed. July copper fell 9.1 cents to settle at $4.228 a pound, July platinum rose $13.80 to $1,819.20 an ounce and June palladium rose $2.40 to $758.10 an ounce.

In other trading, grains and beans fell. In contracts for July delivery, corn fell 13.5 cents to settle at $7.5925 a bushel, wheat fell 35 cents to $8.12 a bushel and soybeans fell 4.75 cents to $13.845 a bushel.

Oil prices also rose on the Fed's interest rate announcement.

Low interest rates have kept the dollar weak against other currencies. That has contributed to higher oil prices, since oil is priced in dollars. Oil is more attractive to buyers with foreign currency as the dollar falls.

Benchmark crude for May delivery rose 55 cents to settle at $112.76 per barrel on the New York Mercantile Exchange.

In other Nymex trading, heating oil rose 2.08 cents to settle at $3.2481 per gallon, gasoline rose 5.1 cents to $3.3582 per gallon and natural gas fell 1 cent to $4.377 per 1,000 cubic feet.