Gold
Rises to Highest Since 1980 as Dollar Slumps on Fed's Cut
By Pham-Duy Nguyen
Sept.
18 (Bloomberg) -- Gold futures rose to a 27-year high after
the Federal Reserve cut interest rates, sending the dollar
to a record low against the euro and boosting the appeal of
the precious metal as a currency hedge.
The Fed lowered its benchmark
rate by 0.5 percentage point, more than economists forecast,
to 4.75 percent, the first cut in four years. Five of the
past six bear markets for the U.S. currency have sparked a
rally in gold.
``Investors are scared,''
said Ron Goodis, futures trading director at Equidex Brokerage
Group Inc. in Closter, New Jersey. ``The rate cut is inflationary,
and money is flowing into gold as a hedge.''
Gold futures for December
delivery jumped $11.70, or 1.6 percent, to $735.50 an ounce
at 3:26 p.m. in electronic trading on the Comex division of
the New York Mercantile Exchange. That marked the highest
price for the most-active contract since Feb. 11, 1980.
``Today's action is intended
to help forestall some of the adverse effects on the broader
economy that might otherwise arise from the disruptions in
financial markets,'' the Federal Open Market Committee said
in a statement after meeting today in Washington.
The reduction in borrowing
costs was the first since 2003. Before today's meeting, the
Fed kept rates unchanged since June 2006.
`Most Aggressive'
``This is the most aggressive
move they could have made,'' said William O'Neill, a partner
at Logic Advisors in Upper Saddle River, New Jersey. ``It's
bullish for gold.''
A cut of 50 basis points or
more would weaken the dollar further and spark a rally in
gold, analysts said before the rate cut was announced.
Gold futures were down 10
cents to $723.70 an ounce at the close of floor trading.
Gold may rally in all currencies
as other central banks follow the Fed and reduce rates to
ease credit-market turmoil, analysts said. The sudden disappearance
of bid or offer prices for securities that are collateralized
by some defaulted U.S. subprime mortgages have roiled global
equities and debt securities.
``Central banks are certainly
on the same wavelength,'' O'Neill said. ``Gold has been anticipating
falling global interest rates.''
Gold priced in euros, yen
and the British pound have rallied in the past month.
``This is a global bull market
in gold,'' Dennis Gartman, economist and editor of the Suffolk,
Virginia-based Gartman Letter, said in a report before the
Fed announcement. ``Weakness is to be bought rather strength
being sold.''
The euro reached a record
$1.3981 after the announcement. Gold futures climbed to $873
an ounce, the highest ever, in January 1980.