Updated from 12:42 p.m. EDT
Gold and metals rose sharply on Friday amid a dollar sell-off after the
gave a benign outlook about future hikes in interest rates on Thursday.
Gold for August delivery surged above the $600 mark to finish on a gain of $27.80, or 4.7%, to $616.70.
Among other metals, silver for July delivery gained 57 cents, or 5.5%, to $10.99 an ounce, while copper for July delivery rose 3.9 cents, or 1.17%, to $3.36 a pound.
The metals market, which was closed Thursday by the time the Fed delivered its quarter-point rate hike and made conditional comments about future policy, rallied overseas and at the opening of trading Friday.
Several changes in the Fed's language energized investors hoping for a sign that the Fed will pause, if not stop, its two-year long campaign to raise rates.
When it hiked rates in May, the Fed had said that it expected economic growth to moderate. In the statement accompanying Thursday's hike, it said "economic growth is moderating from its quite strong pace earlier this year."
Commodities have sold off over the past month and a half amid worries that the Fed might lift interest rates too much, hurting a U.S. economy that is already showing signs of slowing. This, commodities bulls feared, would curb global growth and demand for raw materials.
The dollar had also began rallying since mid-May on the prospect of further rate hikes, pressuring commodities even more. A stronger dollar impacts the price of dollar-denominated commodities, such as gold, as it takes less of the currency to buy the same amount of gold.
But the dollar plunged following the Fed's comments, and it continued to slide on Friday. The Dollar Index, which tracks the value of the dollar against a basket of key currencies, was recently down 0.7%.
A report on personal income showing that the Fed's favorite inflation indicator, the personal consumption expenditures index, rose 4.1% in May failed to revive the dollar. Ex-energy, the core PCE deflator rose 0.2%, which was less than the more popular consumer price index.
In addition, a survey showing weakness in manufacturing activity in the Chicago economy in June reinforced expectations of a declining trend in the national ISM report to be released on Monday.
Meanwhile, global central banks are also raising interest rates, a prospect which contributed to the commodities sell-off since mid-May, but which might now contribute to a weakening dollar, says Chintan Karnani, metals analyst with New Delhi, India-based Insignia Consultants.
"It's just the interest rate differentials that is supporting the U.S. dollar and if it narrows the slump in the dollar will continue," he writes.
Gold and metals had already began showing signs of recovery earlier this week. According to Michael Jalonen, metals analyst with Merrill Lynch, gold made a bottom when it closed at $560 on June 14, representing a 23% drop from its May highs.
Since then, gold has benefited from safe-haven bids amid rising crude oil prices and tensions between the U.S. and Iran over Tehran's nuclear program.
Now that markets see a pause in rate hikes in the near future, gold could start anticipating its traditional end-of-summer/early fall rally, according to Jalonen.
Merrill chief U.S. economist David Rosenberg expects the Fed to take a pause in August. "If this is the case and the Fed does pause in raising U.S. interest rates, this would be a favorable development for bullion," writes Jalonen. "Given the plethora of favorable factors impacting bullion (Merrill Lynch's forecast for further weakness in the dollar, renewed fabrication demand in the fall and geopolitical tensions, to name a few), we believe bullion should rise back to the $650/oz level by early fall."
Meanwhile, shares of metals miners were also rallying in recent action, the performance of metals. The Philadelphia Gold and Silver index was recently up 2%, the Amex Gold Bugs index was adding 2.5% and the CBOE Gold index was up 2.3%.
Among the biggest gainers,
was adding 5% and
was up 4.8%.
The newly launched
Market Vectors-Gold Miners
exchange-traded fund, which tracks the performance of the
Amex Gold Miners Index
, was up 1.9%.
But ETFs tracking the metals themselves were also rising. The
iShares Silver Trust
was up 2.6% and the
StreetTRACKS Gold Trust
was up 2.7%.