Gold futures jumped the most in 14 weeks as the Federal Reserve said U.S. interest rates will remain low, driving the dollar lower and boosting demand for the precious metal as an alternative investment.

The greenback fell to a four-week low against a basket of 10 major currencies. Yesterday, Fed Chair Janet Yellen said rates will probably remain low for a considerable time after debt purchases by the central bank end. In 2013, gold ended a 12-year rally on expectations that the Feb would taper monetary stimulus following gains in the labor market.

“Some people are buying gold since Yellen made it clear that the low-interest rate regime is here to stay,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “The dollar’s weakness is also supportive.”

David Fuller's view

These factors have been around for months. 

It is a case of the fundamentals beginning to catch up with gold and silver prices.  Today’s price surge by gold and silver understandably sparked interest.  Commentators look around for the reasons and they are not hard to find.  In addition to persistently low interest rates, massively accommodative monetary policies by the USA, Japan and European Union, the US dollar is not the only soft currency.  No country wants its fiat currency to appreciate.  The pick up in US inflation that we have seen recently, while not yet worrying the Fed Chairman, is a repost to those forecasting widespread deflation.  Shinzo Abe is also heralding the success of his policies in finally breaking Japan’s trend of deflation. 

In other words, all fiat currencies are losing purchasing power, mostly on a gradual basis although a few of them achieve this quite rapidly.  This is beginning to register, once again, with investors and traders.  Plenty of gold and silver shorts have been covered today. 

(See also Eoin’s comments on gold shares below.)