Gold Rises as Fed Leaves Rates Alone, Keeps Buying Treasuries

June 24 (Bloomberg) -- Gold rose after the Federal Reserve left interest rates at record lows and maintained its policy of buying Treasury securities, boosting demand for precious metals as a store of value. Silver also advanced.

The Fed kept its key-rate target at between zero and 0.25 percent after a two-day meeting ended today in Washington. In a policy statement, the central bank said “inflation will remain subdued for some time” and that it still plans to buy as much as $300 billion in Treasuries “by autumn.” Before the Fed issued its statement, gold jumped as much as 2.2 percent today.

“Gold continues to be focused on the idea that ‘inflation will remain subdued,’” said Ralph Preston, a Heritage West Futures Inc. commodity analyst in San Diego. Since gold failed to surpass $944.40 an ounce earlier today, “prices are capped and poised to test $912 support. A push below $912 projects trending price action below $900.”

Gold futures for August delivery rose $7.60, or 0.8 percent from yesterday’s close, to $931.90 an ounce at 5:07 p.m. in electronic trading on the New York Mercantile Exchange’s Comex division. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, climbed as much as 1.1 percent after the Fed issued its statement at about 2:15 p.m.

“The dollar’s reaction to the upside after the statement is pressuring gold and other commodities,” said Tom Pawlicki, an MF Global analyst in Chicago. “The inference is that gold had been caught expecting a more dovish statement.”

Earlier Advance

Gold ended regular Comex trading with a 1.1 percent advance to $934.40, before the Fed meeting concluded. Some investors buy gold as a hedge against inflation. The U.S. consumer price index has fallen 2.7 percent since September, government data show.

In London, bullion for immediate delivery was little changed, rising 70 cents to $932.10 an ounce at 10:15 p.m. local time. In London trading earlier today, spot prices gained $5.58, or 0.6 percent, to settle at $931.40 after the Fed released its policy statement.

“What is it about the U.S. dollar that has ‘prevented’ the materialization of fresh all-time highs in bullion?” Jon Nadler, an analyst at Kitco Metals Inc. in Montreal, said by e- mail. “The rather banal explanation is the fact that the world is lacking for better alternatives.”

Dollar as Rudder

The dollar rose 1.1 percent to settle at $1.393 per euro in New York following the Fed statement and was little changed in early overnight trading. The greenback gained after the Federal Reserve left intact its $1.75 trillion purchase program, which also includes as much as $1.45 trillion in mortgage-related securities and debt.

While acknowledging gains in energy and commodity prices recently, “substantial resource slack is likely to dampen cost pressures,” the Fed said in the statement. The benchmark target overnight lending rate between banks is likely to remain at “exceptionally low levels” for an “extended period,” as warranted by economic conditions, the Fed said.

Silver futures for July delivery climbed 6.6 cents, or 0.5 percent, to $13.942 an ounce in electronic Comex trading. Silver for immediate delivery was unchanged in late London trading. Earlier, the metal gained 1.5 cents, or 0.1 percent, to settle at $13.865 an ounce on the London spot market.