Shares of most precious gold and silver mining companies posted substantial gains on Wednesday after the Federal Reserve decided to once again expand its ever-growing balance sheet.
The Philadelphia Gold & Silver Index (XAU), comprised of many of the world’s largest precious metals producers, finished higher by 2.5% at 167.82. Among the XAU’s components, three of the largest advancers today were Gold Fields (GFI), New Gold (NGD), and Silver Standard Resources (SSRI). Shares of GFI jumped by 3.8% to $11.84, NGD by 4.1% to $11.25, and SSRI by 4.8% to $15.37.
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The sector was buoyed by an initial rally in gold and silver futures, which rose to intra-day highs of $1,725.00 and $33.87 per ounce, respectively. Gold and silver stocks were able to maintain their strength in afternoon trading despite the fact that the metals relinquished the large majority of their gains and the broader equity markets gave back their entire rally from earlier in the day.
Precious metals nonetheless finished in positive territory and the U.S. dollar declined after the Fed launched a fourth round of quantitative easing (QE4) in which it will purchase an additional $45 billion in U.S. Treasury securities each month. The U.S. central bank also changed the conditions under which it will end its near-zero interest rate policy – from a time-based one targeting mid-2015 to a program based on reaching an unemployment rate of 6.5% or an inflation rate of 2.5%.
Commenting on QE4 and its impact on the markets, Jeffrey Wright – a managing director at Global Hunter Securities – wrote that the Fed’s decision will “further weaken the U.S. dollar and support gold well into 2013, with volatile trading patterns along with profit-taking periods as well.”
With regard to a specific gold price target, Wright said he expects a “steady progression with higher gold above $1,850” per ounce in the first six months of next year.
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