INVESTORS BUY GOLD ON FED ANNOUNCEMENT

Gold prices are rallying as investors digest the Federal Reserve’s comments on the U.S. economy and its decision to buy U.S. bonds. Gold is often seen as a safe haven asset in times of economic uncertainty. The Fed left key interest rates at 0% to 0.25%, which was expected, but downgraded its view on future economic growth saying, "the pace of economic recovery is likely to be more modest in the near term than had been anticipated." (The Street, 8/11/10)

Stocks slid Wednesday after a wider U.S. trade gap and downbeat foreign data cast doubt on overseas demand for American goods. Before the market opened, the government reported the trade deficit widened to $49.9 billion in June from a revised $42 billion the previous month. "[The] figures suggest the U.S. cannot rely on a boost from overseas demand to offset the current weakness of the domestic economy," said Paul Dales, U.S. economist at Capital Economics. "In fact, the rebounding trade deficit is exacerbating the downturn." (CNN Money, 8/11/10)

CNBC’s Larry Kudlow is anticipating gold prices will jump in response to what he referred to as the Fed choosing “stimulus over dollar stability.” The dollar fell and gold rose after the FOMC signaled today that it would keep its balance sheet steady by reinvesting the proceeds of mortgage bonds into Treasuries. According to Kudlow, “By itself, this is a modest move. But it could be the start of something bigger. If recovery conditions continue to slow, the Fed could be more aggressive by monetizing more Treasury debt and expanding the balance sheet to print money. If it does that, the dollar will depreciate more and gold will rise more. A lot more.” (CNBC, 8/11/10)