Forexpros – Gold futures rallied to a two-week high on Wednesday, as the U.S. dollar weakened sharply after six major central banks announced a coordinated move to boost the capacity to inject liquidity into the global financial system.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,749.75 a troy ounce during early U.S. morning trade, soaring 1.79%.
It earlier rose by as much as 1.9% to trade at USD1,751.15 a troy ounce, the highest price since November 17.
In a joint statement, the Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank said they had agreed to lower dollar swap rates by 0.5% to prevent a lack of liquidity in the global financial system.
The European Central Bank said the plan was aimed at reducing the credit-supply strain on households and businesses.
Gold can benefit from such an environment of easy money because of expectations that ample liquidity would put a damper on the value of paper currencies.
The surprise announcement came after the People’s Bank of China said that it plans to cut banks reserve requirement ratios by 0.5%, in an effort to help boost liquidity and support the world’s second largest economy amid global market turmoil.
The news saw risk appetite sharpen, prompting investors to move out of the U.S. dollar and into riskier assets, such as stocks and commodities.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, tumbled 1.3% to trade at 78.10, the lowest since November 18.
The metal’s safe-haven appeal has diminished recently, and has tended to trade in line with stocks and other commodities, with investors preferring to turn to the relative safety of the U.S. dollar.
Gold prices declined during the Asian trading session as concerns over the sovereign debt crisis in the euro zone lingered after a meeting of euro zone finance ministers on Tuesday failed to reassure markets.
Sentiment was also weighed after ratings agency Standard & Poor’s downgraded its ratings on 15 major global lenders on Tuesday, underlining concerns over the health of the global banking system.
Elsewhere on the Comex, silver for March delivery jumped 1.6% to trade at USD32.46 a troy ounce, while copper for March delivery surged 4.15% to trade at USD3.532 a pound.
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