Gold Prices Pop on Fear

Gold prices took their cue from the Federal Reserve. The Fed reiterated Wednesday that interest rates would stay low for an extended period of time. The announcement was no immediate help to gold, but the Fed's downgrade of the U.S. economy coupled with continued "free money" and disappointing economic data provided support for higher gold prices.

The Fed also said that inflation worries were subdued and stable, which prompted some traders who had been buying gold as an inflation hedge to readjust their positions. With the inflation trade out of the gold market in the short term today's move can really be attributed to fear.

Thinning volume, momentum buying, book-squaring and today's options expirations will also lead to more volatile gold prices. "[We] can't find new bullish news," says George Gero, vice president of global futures at RBC Capital Markets. "We hit $1,250 three times. But the technical picture is still $1,175 support and $1,250 resistance for now." Bargain hunters seem to be buying gold around the $1,220 area as they look to buy gold at a "discount."

Silver prices were tracking gold and settled up 27 cents to $18.73 while copper ended up 7 cents at $3.

Gold mining stocks, a more risky and more profitable way to invest in gold , were mixed. Hecla Mining(HL) was down more than 2% to $5.49 while Agnico-Eagle(AEM) was slipping slightly to $61.36. Other miners Pan American Silver(PAAS) and Freeport McMoRan Copper & Gold(FCX) were trading at $26.46 and $63.47, respectively.

--Written by Alix Steel in New York.

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