Gold Prices Trade Sideways

NEW YORK ( TheStreet) -- Gold prices were trading sideways on Friday as investors took profits from Thursday's leap that resulted from the Federal Reserve's implementation of so-called QE3.

Gold for December delivery was dipping 60 cents to $1,771.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,780.20 and as low as $1,767.70 an ounce, while the spot price was rising $2.20, according to Kitco's gold index.

" What is important for the gold market is that the Fed has resumed the cornerstone dollar decline policy which Bernanke has long discussed in his papers relating to options at the zero bound for handling debt deflation via exchange rate mechanisms," said Sonny Tahiliani, managing director of precious metals at MacroMoves Capital Advisors.

Silver prices for December delivery were falling 20 cents to $34.58 an ounce, while the U.S. dollar index was dropping 0.52% to $78.86.

The Fed announced plans Thursday for an open-ended purchase of $40 billion worth of mortgage-backed securities per month until the economy and employment has maintained substantial improvements. The central bank also said it would extend Operation Twist, which is a program that buys longer-term securities as the shorter-dated ones mature each month.

Shortly after the Fed's QE3 decision, the gold price posted one of its biggest gains in 2012. The announcement came about one hour before the yellow metal's price settled, but it managed to jump from the flat line to finish up $38.40.

Analyst sentiment for quantitative easing was mixed as some fully expected a form of monetary stimulus, while others expected the central bank to wait at least until its next meeting.

Ultimately, it was last Friday's weak jobs number that pushed the Fed to act aggressively. Previous QE1 and QE2 measures had defined limits, which made QE3's open-ended strategy somewhat unprecedented in its implementation.

Critics of prior easing had complained that the Fed's fixed stimulus programs essentially pulled the rug out from under a recovering economy when the pre-determined bond-buying period ended. Thus, it would have left markets uncertain as to how the economy would react without the central bank's crutch. Now, though, Fed Chairman Ben Bernanke has promised to buy mortgage-backed securities until employment has improved and held its gains, while he has also shied away from specifying how much he would let inflation rise before pulling the plug.

"If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Federal Open Markets Committee said Thursday.

Gold prices surged Thursday as the value of dollars started to sink, because a flood a new cash expected to enter the economy from the monetary system would theoretically make the U.S. currency cheaper, thus making the value of gold -- a commodity that can't increase its supply at will -- more appealing to investors.

Another argument is that the Fed's easing policies for the past four years could lead, in the longer term, to inflation pressures. The fear of rising inflation also bolsters gold prices to the upside.

Though the Fed dominated gold investors' minds for most of the past two weeks, eurozone troubles and the region's developing bond-buying program have also supported a rise in gold prices. Recent easing from Brazil and a massive infrastructure stimulus plan announced by China are two more examples of worldwide actions that are driving gold to its highest levels in a year.

Gold mining stocks were mostly higher Friday. Shares of Randgold Resources ( GOLD) were jumping 6.1%, while NovaGold Resources ( NG) was gaining 4.6%.

Among other mining stocks, Kinross Gold ( KGC) was up 3.8%, while Barrick Gold ( ABX) was gaining 2.4%.

Gold ETF SPDR Gold Trust ( GLD) was up 0.46% on volume of 3 million.

-- Written by Joe Deaux in New York.

>Contact by Email.

More from Gold

Gold Prices Look 'Rich' at Current Levels - Here's What Could Change That

Gold Prices Look 'Rich' at Current Levels - Here's What Could Change That

Watch This If You're Wondering How Much Gold to Have and When to Sell

Watch This If You're Wondering How Much Gold to Have and When to Sell

How Can Gold Continue This Upward Momentum?

How Can Gold Continue This Upward Momentum?

The Outlook for Gold Prices Looks Awful Even With 10-Year Yields Above 3%

The Outlook for Gold Prices Looks Awful Even With 10-Year Yields Above 3%

Gold Owes Everything to Investor Interest

Gold Owes Everything to Investor Interest