Money and Metals

MarketWatch reports on the currency trading. "The dollar fell sharply against the euro and yen Wednesday after the Federal Open Market Committee held its benchmark federal funds rate unchanged at 5.25% and said that core inflation has improved modestly."

"The decision to hold rates steady was unanimous and widely expected by economists. The statement following the meeting acknowledged both firmer growth and more moderate inflation. 'Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time,' the committee noted. The Fed also said that 'some tentative signs of stabilization have appeared in the housing market.'"

"Gold futures extended their gains into the electronic session Wednesday following news that the Federal Reserved decided to keep overnight interest rates steady at 5.25%. "

"Futures prices for gold had ended the regular trading almost $8 higher -- at their highest level in two months, finding support from strength in crude and some weakness in the U.S. dollar. After regular futures trading ended, the Federal Open Market Committee on Wednesday kept its benchmark federal funds rate unchanged at 5.25% and made only modest changes to its policy statement."

"'With the Fed keep rates steady and reiterating their concerns on inflation, this combination is providing some extension of today's earlier gold rally higher,' said Peter Spina, chief investment strategist at GoldSeek.com."

"After the announcement, gold for February delivery last traded at $653 an ounce in electronic trading. The contract had climbed $7.80 in the regular session to close at $652 an ounce on the New York Mercantile Exchange."

"Prices only slightly pared gains by the close of the regular session, after trading as high as $655.50 the contract's highest intraday level since Dec. 1."

"February gold finished last month at $638 so it ended January with a gain of 2.2%. The trading volume has now moved to the April contract, which closed up 1.2%, or $7.70, at $657.90 an ounce. It's ended 2.1% above its Dec. 29 close. In electronic trading April gold last traded at $658.20 an ounce."

"'Inside the U.S., all is well and the economy is looking good, but this means that the trade deficit will not look good as a healthy U.S. means a constant and maybe bigger trade deficit, lower dollar, higher oil and a strong gold price,' said Julian Phillips, an analyst at GoldForecaster.com."

"'As to the big picture, this is like the man who fell off a 50 story building and as he passed the 12th story was heard to say, 'so far, so good',' he said. 'This [Fed] news was negative to the dollar and gold positive.'"

"The market also appeared to be mostly unfazed by report released Wednesday afternoon, in which the International Monetary Fund proposed the sale of about 400 metric tons of gold to help fund its activities. The current market value of the gold amounts to $6.6 billion, it said."

"'Investment profits from its sale could yield a real return of some [$195 million] a year,' the report said. But the 'limited gold sales should ... be coordinated with current and future central-bank gold agreements so as not to add to the volume of sales from official sources,' it said."

"'The proposal is 'not a done deal,' emphasized Kitco.com's Jon Nadler. But the news is significant 'because 400 tonnes is about what all central banks can sell in a year (500T) -- thus it would double official sector disposals in the marketplace,' he said."

"Then again, GoldSeek.com's Spina questioned whether such a proposal would work. 'The past attempts always came to the same argument that the IMF will never get support from the U.S. government to proceed with such an action,' he said."

"And 'people should understand this point clearly: the IMF has no gold reserves,' he said. 'All IMF gold is owned by member countries and pledged to them. That is why the U.S. Congress must approve any sales of 'IMF gold', which really is the gold of the citizens of the U.S.'"

"Against this backdrop, other metals ended the regular session mainly higher, with March palladium as the lone loser, down 70 cents to close at $340.55 an ounce. It's fallen 0.6% from the end of December. March silver closed up 19.5 cents to $13.57 an ounce, up 4.9% for the month. April platinum added $1.70 to close at $1,182.30 an ounce, gaining 3.3% for the month."

From Reuters. "George Gero, vice president at RBC Capital Markets Global Futures, said the gold market rallied because of strong buying related to the expiration of options and futures contracts."

"'It looks like we have got a very good rollover going, and the $650 call (option) is in the money, Gero said."

"Gold's rally on Wednesday coincided with the first notice day for the February contract and the recent expiration of February options. Investors needed to decide whether to roll the February futures into the April contract, creating additional buzz in the market."

"'I don't think the GDP had a major impact on gold today. There were no major surprises as far as we're concern,' Gero said."