Precious Metals Spike After QE3

It finally happened. After weeks of speculation that the US Federal Reserve would implement a third round of bond buying, or quantitative easing, US Federal Reserve chairman Ben Bernanke today launched QE3.

The Fed said it will start buying $40 billion worth of mortgage debt each month, starting this Friday, as it seeks to boost economic growth and reduce unemployment.

The market reaction was swift and overwhelmingly positive, especially for precious metals. As of 14:29 EST, gold was at $1771.10 an ounce, up $39.80, or 2.29%, according to Kitco. Silver also had a dramatic spike, heading $1.15 higher within minutes of the announcement, against the $33.31/oz spot price close yesterday.  The Standard & Poor’s 500 Index rose 0.7 percent to 1446.57 as of 12:48 p.m. in New York while the yield on US 10-year Treasury notes increased to 1.81%, according to numbers sourced from Bloomberg.

Issuing a statement at the end of a two-day meeting, the Federal Open Market Committee said the FOMC will continue to purchase mortgage-backed securities as long as the labor market does not substantially improve. Bernanke has called the US employment rate,  stuck above 8 percent since February, “a grave concern.”

The Fed also said it will extend low interest rates until the middle of 2015 and will continue “Operation Twist,” a program whereby the Fed swaps $667 billion of short-term debt with longer-term securities in order to lengthen the average maturity of its holdings.