Gold jumps 2 percent as Fed stimulus stirs inflation fears

Thu Sep 13, 2012 2:35pm EDT
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By Frank Tang

NEW YORK (Reuters) - Gold surged 2 percent to $1,770 an ounce on Thursday, scaling a six-month high, after the Federal Reserve launched another aggressive stimulus program.

The metal received a strong boost after the U.S. central bank said it would buy $40 billion of mortgage-backed debt each month until the jobs outlook improved substantially, as long as inflation remained contained.

Market watchers said the Fed was essentially shifting its focus to employment from price stability.

"They are emphasizing the growth mandate, and that means they don't care about inflation other than giving lip service to it," said Axel Merk, chief investment officer at Merk Funds, which has $600 million in currency mutual-fund assets.

"The price of gold will do very well in the years to come," Merk said.

Spot gold jumped 2 percent to $1,766.40 an ounce as of 1:58 p.m. EDT after hitting a high of $1,772.11, within striking distance of a 2012 high of $1,790, set on February 29.

U.S. gold futures for December delivery settled up $38.40 at $1,772.10 an ounce in very heavy volume.

The gold option order flow indicated that bullion could rally further as investors scrambled to buy back their previously bearish bets after the Fed announcement, said COMEX gold option floor trader Jonathan Jossen.   Continued...

Gold bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011. REUTERS/Lisi Niesner