Gold and silver ETFs jumped Thursday after the Federal Reserve said it will expand its bond-buying program by purchasing more agency mortgage-backed securities at a pace of $40 billion a month.
This is the third round of bond purchases or quantitative easing from the Fed, known as QE3.
The central bank also extended its pledge to keep the federal funds rate near zero at least through the middle of 2015.
Precious metal ETFs rallied Thursday as further monetary easing from the Fed is seen as inflationary and bearish for the U.S. dollar.
SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: SLV) were up about 2% and 4%, respectively, after the Fed announcement.
Analysts said the disappointing August nonfarm payrolls report made QE3 more likely. [Fed Outlook: Weak Jobs Report Raises QE3 Odds]
“The number of jobs created in recent months is far less than the 150,000 jobs per month indicated by the Fed as necessary to cause a sustainable reduction in the unemployment rate,” ETF Securities said. “Communication from Fed officials, most recently by Bernanke at the Jackson Hole conference, has highlighted the importance of bringing the jobless rate down.” [Gold ETFs Jump as Investors Anticipate QE3]
“Growth in employment has been slow, and the unemployment rate remains elevated,” the Federal Open Market Committee said in Thursday’s statement. “The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.”
The FOMC said the Fed’s bond-buying program should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The central bank said it will take further action if the outlook for the labor market doesn’t improve substantially.
KBW notes the Fed will also continue through the end of the year its “Operation Twist” and its current policy of reinvesting principal payments from its portfolio of agency debt and agency MBS. This will bring Fed purchases of longer-term securities to about $85 billion through the end of the year.