Gold prices rise as Fed keeps interest rates low

AP News
Posted: Jan 25, 2012 3:40 PM
Gold prices rise as Fed keeps interest rates low

Gold prices rose Wednesday after the Federal Reserve said it will keep interest rates near zero until 2014 at the earliest to help jump-start economic growth.

The central bank said the economy is growing at a moderate pace but there has been slowing in global growth. It described inflation as "subdued" and held off on any further bond-buying programs.

The Fed's new plan pushed back the date for any likely increase in its benchmark interest rate by at least a year and a half. Previously, the members of the monetary policy committee had said they would keep rates low until at least mid-2013.

The Fed wants to keep interest rates low to make loans more affordable for businesses and consumers in hopes that they will spend more to aid the economic recovery. That could lead to stronger demand for commodities such as oil and industrial metals.

The announcement prompted investors to buy gold as a hedge against inflation, which investors fear could be a result of the Fed's extended low-interest rate policy.

Gold for February delivery rose $35.60, or 2.1 percent, to finish at $1,700.10 an ounce. It was the first time that the settlement price topped $1,700 an ounce since early December.

Most commodities followed gold's lead and posted gains as the dollar weakened against other currencies. Since commodities are priced in dollars, a weaker dollar makes them cheaper for investors who trade with other currencies.

In March metals contracts, silver jumped $1.146, or 3.6 percent, to finish at $33.121 per ounce, copper rose 2.2 cents to $3.8295 per pound and palladium increased $12.80 to $693.35 per ounce. April platinum finished up $27.20 at $1,579.60 an ounce.

Most energy products were higher. Benchmark oil rose 45 cents to end at $99.40 per barrel on the New York Mercantile Exchange. Heating oil fell 0.47 cent to finish at $3.0104 per gallon, gasoline futures increased 2.69 cents to $2.8374 per gallon and natural gas rose 16.8 cents to $2.769 per 1,000 cubic feet.

In March agriculture contracts, wheat rose 7.75 cents to end at $6.4125 per bushel, corn increased 4.25 cents to $6.345 per bushel and soybeans fell 6.5 cents to $12.135 per bushel.