Gold Prices Soar, Dollar Slammed

Gold Prices Soar, Dollar Slammed

NEW YORK (TheStreet) -- Gold prices had been on fire Thursday afternoon "on the back of the post-Fed dollar weakness," as FastMarkets research analyst James Moore put it in a daily note.
The upsurge occurred after a day of volatility for the yellow metal on Wednesday as investors awaited, and later digested, quantitative easing news from the Federal Reserve.

"Increased risk appetite following the Fed announcement yesterday may prompt pockets of long liquidation in the precious metals as stocks and other commodities gain, however strong physical demand and longer-term inflationary concerns will continue to underpin the metals with a weak dollar set to provide further upside momentum," Moore wrote.

Gold for December delivery surged by $44.70 to $1,382.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday traded as high as $1,384.80 and as low as $1,346.70.

The U.S. dollar index was weaker by 0.6% to $75.84, while the euro was 0.6% higher at $1.42 against the dollar. The spot gold prices popped by more than $34, according to Kitco's gold index.

Before the Fed revealed its decision at 2:15 p.m. EST to purchase up to $600 billion in long-term Treasuries until the end of June 2011, vs. the $500 billion that the market was expecting, Adrian Ash of had said he wouldn't be surprised if gold emerged from the bloodbath ahead of the announcement. "Call it a speculative bubble if you like, but the bid for natural resources will only grow stronger as cash continues to lose value," he said.

Mitchell Eichen, founder and CEO of The MDE Group, a $1.3 billion asset management firm with offices in New Jersey and New York City, noted that bubbles can persist for a long time. "You don't know where they are, but there seems to be a very emotional reaction on the gold side. At the end of the day it's all tied into the fact that the dollar's devaluating and there's long-term fear of inflation because of QE2." While Eichen thinks that gold prices can reach $1,700, he warned that it could suffer a very hard landing if the bubble burst.

In a morning note on Thursday, EverBank World Markets president Chuck Butler said the FOMC backed itself into a corner with its QE2 announcement. "If there's one thing I learned in business school, it's that you don't give a time or an amount unless you're 100% sure you will meet those targets," he noted. "Once the FOMC said that the buying would end by next June, and total $600 billion, they set themselves up for a big failure and loss of credibility."