Gold prices booked two gains in a row Thursday and silver surged more than 5 percent after the European Central Bank and Britain's central bank acted to protect the continent's staggering banks.
The ECB kept its benchmark interest rate at 1.5 percent but said it would extend the period during which it will loan money to banks from six months to one year. The Bank of England said it planned to resume bond purchases.
The moves, which lifted the euro and weighed on the U.S. dollar, will increase the amount of cash in Europe, something monetary authorities hope will keep the financial system from freezing up in the event of a Greek default.
However, while increasing Europe's money supply may spur business it also heightens the likelihood of inflation - already at 3 percent - getting out of hand and, therefore, burnishes gold's status as an alternative store of value.
I really don't see the safe-haven attraction of gold is going to change very much because of all the financial problems in Europe and in the western world, Leo Larkin, metals equity analyst at Standard & Poor's, told Reuters. There is still a lack of confidence in financial assets.
U.S. stocks rose, with the S&P 500 adding 10.05 to 1,154.08, the Dow Jones Industrials gaining 89.53 to 11,029.48 and the Nasdaq Composite Index rising 23.60 to 2,484.22. Equity analysts attributed the gains to improved retail sales last month plus hope that the European bank moves would be successful.
The market has been pricing in an out-and-out recession, but the fact that consumer spending is holding up shows that we're more likely to continue muddling through at a 1 to 2 percent growth rate, Brain Gendreau, market strategist at Cetera Financial Group, told The Associated Press.
Silver was the standout precious metal.
Silver seemed to be feeding off strong recovery action in a host of physical commodity markets, which in turn were cheered by the appearance of an improvement in Eurozone affairs and perhaps even by a slightly improved U.S. macro economic outlook, the CME Group said in a statement. In the past, sharply higher equity market action seemed to give off a feeling of optimism but many expect that view to be put to a test on Friday morning.
For its part, gold may have been helped by some buyers stepping into positions ahead of the U.S. non-farm payroll report on Friday as many think that information could dash recession expectations or rekindle widespread macro economic uncertainty, CME said.
Gold for December delivery rose $11.60 to $1,653.20, a 0.7 percent gain, while gold for immediate delivery rose $11.35 to $1,651.83.
Silver for December delivery rose $1.65 to $32.00, a 5.4 percent gain, while silver for immediate delivery rose $1.62 to $31.96.