Gold price jumps after Fed eases QE fears

The gold price jumped more than 1% on Wednesday, erasing recent losses after news of an unexpected economic contraction in the US and a pledge by the Federal Reserve to continue its quantitative easing program.

In after hours trade April gold futures exchanged hands for $1,681 an ounce, up more than $18 or 1.1% on the day.  

The yellow metal was boosted by economic data coming out of the US that showed the economy shrunk 0.1% during the 4th quarter 2012.

The reason gold benefited from the bad GDP number is because any good news on the economic front means a quicker end to global central banks’ ultra-accommodative monetary policy and QE programs. 

Gold consolidated its gains later in the day when the Fed assured markets that it will continue to buy up Treasurys and mortgage bonds to the tune of $85 billion a month because it continues to see “downside risk to the economic outlook”.

The Fed’s balance sheet crossed the $3 trillion mark early into 2013 and is set to top $4 trillion by the end of the year.

QE, which floods markets with cheap money, increases gold’s allure as a hedge against inflation amid currency depreciation.

Gold has doubled in value since the first QE program was announced by chairman Ben Bernanke in December 2008.

Image by Albert H Teich – Shutterstock.