gold has $us1000 level in spotlight

GOLD closed sharply higher in New York, rising nearly 8 per cent and easily breaking back above the $US900 an ounce level.

Analysts said the move was a continuing reaction to late-Wednesday news that the Federal Reserve would purchase up to $US300 billion ($446 billion) of long-term Treasury securities and hundreds of billions more in mortgage-backed securities.

The Fed policy-setters' latest move to resuscitate the economy put the US dollar into a downward spiral and rekindled fears about longer-term inflation prospects, both of which tend to result in the buying of gold.

Much of the rally in gold occurred in after-hours screen trading in the previous session following a post-meeting statement from the Federal Open Market Committee, but all extended their gains in the latest session.

"Clearly, there is a very substantial knee-jerk reaction to the moves from the Federal Reserve," said Bill O'Neill, one of the principals with LOGIC Advisors.

April gold rose $US69.70 to $US958.80 an ounce on the Comex division of the New York Mercantile Exchange. May silver rose $US1.585 to $US13.520.

"The US dollar is dropping significantly, coming from the upside pressure on Treasuries and long-term rates being pushed down," said Patrick Lafferty, Commodity Trading Adviser with MF Global.

KEY COMMODITY PRICES: oil, gold, base metals, livestock and wheat

Shortly after the gold pit closed, the euro was at $US1.3693, well up from the low of $US1.2987 hit in the previous session.

The market has also risen on the potential inflationary implications of the Fed move, Mr Lafferty and Mr O'Neill said. There have been worries about potential inflation for some time due to the many liquidity additions from central banks around the world, Mr O'Neill said.


Several observers said there was short-covering to unwind some of the recent selling.

Mr O'Neill also pointed out that holdings backing SPDR Gold Shares, the world's largest gold exchange-traded fund, jumped 15.28 tonnes as of the end of business yesterday to a record of 1084.33, reflecting the new-found interest in gold.

"You have an absolute flight quality to gold," Mr Lafferty said. "With the momentum it has, it should make a run at the highs we had back in mid-February over $US1000 an ounce. It shouldn't be much of a problem, with this (Fed) news.

"The market has tremendous momentum right now. There were inflationary fears to begin with, but this has compounded them. If the US dollar continues to fall, the upside in gold is as grand as it's been in a long time."

But while Mr O'Neill described the developments of the last 24 hours as bullish, he also suggested the reaction "is a little bit overdone in the short term". The Fed moves may lead to inflation, but only on a long-term basis and not in the immediate future, he said.

Still, he added, the moves could accelerate if the tumble in the US dollar should accelerate.

The sharp surge since the Fed announcement has reversed some of the near-term technical weakness that previously had been occurring in gold and silver, Mr Lafferty said.

"Gold had a nice head-and-shoulders top and a fracture in a steady uptrend line," he said.

"It completely negated both of those bearish patterns with yesterday's rally. That gives the market renewed strength."


April gold after floor trading closed in the previous session pushed up through its 20-day average, now at $US935.60, plus recent highs in the $US940s. It got up to $US963.50 in the latest session, stopping right around the $US964 high from February 27.