Fed Statement Sparks Gold and Silver Rally

May, 2, 2011, Los Angeles – The price of gold rose 3.60 percent to a new weekly closing high of $1,563.20 an ounce following the statement of the Federal Reserve on Wednesday that interest rates would remain near-zero for an extended period. The price of silver gained 0.31 percent to finish the week at $47.89 an ounce, while the Gold/Silver ratio rose to 32.64, and silver under-performed gold.

Jim Cramer from the popular television show “Mad Money” had some suggestions for investors last week on adding gold bullion to their portfolios.”I think gold has to be an integral part of every portfolio. I have been saying that for about five years now, and I mean it. You have to have it. It has to be part of your diversification, because it is both a currency and a commodity.”

Cramer then went on to recommend an adequate size for the gold position, “If you have been listening to me, you are struggling right now with the size of your gold position. I think it should be up to 20 percent of your portfolio.” He then reassured investors, “Gold has outperformed all assets in the last decade — all of them — in both high and low interest rates so don’t expect too big a downturn.”

Speaker of the House John Boehner warned on Monday that there was a chance that votes to raise the soon to be reached $14.3 trillion debt ceiling, may not happen. The debt limit is expected to be reached by May 16 and even though measures exist that would allow limited borrowing after that time, “The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations,” Treasury Secretary Timothy Geithner said in a letter to Senate Majority Leader Harry Reid. “Failure to increase the limit would be deeply irresponsible.”

Wednesday brought with it the end of the FOMC meeting and the first post-decision news conference for Fed Chairman Ben Bernanke. The Fed statement sparked the buying of gold and silver bullion that lasted throughout the week. While the Fed acknowledged an increase in inflation, “Increases in the prices of energy and other commodities have pushed up inflation in recent months,” the increases are expected to be temporary. The Fed also said that its $600 billion Treasury buying program will end on schedule as planned due to the strength of the economy and an increase in companies hiring.

While speaking at the central bank’s first post-decision news conference, Bernanke said that due to a weak GDP number coming in the first quarter, the Fed would not even consider an interest rate increase for at least two more meetings. Bernanke then said the central bank will likely continue to reinvest its securities holdings, including mortgage-backed securities, as they mature even after the program ends in June. “We are going to continue to reinvest maturing securities, both Treasuries and MBS, so the amount of securities that we hold will remain” approximately constant, said Bernanke.

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American Bullion specializes in adding gold and silver to retirement accounts. If you have a question or would like to know more about your investment options, please call American Bullion at 1-800-326-9598 to speak with a precious metals specialist.