Gold Prices Jump 2% on Fed Promise of More Easy Money

(REUTERS) -- Gold rallied 2 percent on Wednesday, rising above $1,700 an ounce for the first time since mid-December after the U.S. Federal Reserve said it will likely not raise rates for longer than previously expected due to a sluggish economic recovery.

Bullion sharply outperformed equities and industrial commodities after the Fed said it was unlikely to raise interest rates until at least late 2014. The central bank repeated its view that the U.S. economy faces significant downside risks.

From an equity standpoint, it's not a good story as the Fed was anticipating a much slower rate of growth than the market was, said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Gold was reacting to the Fed's guidance of historically low rates all the way until 2014, which suggests that there will be plenty of investment money around for an extended period of time, he said.

Gold also received a boost after the central bank appeared more sanguine on the inflation outlook, suggesting prices were now rising at a pace consistent with policymakers' goals.

Spot gold was up 2.2 percent at $1,702.80 an ounce by 1:39 p.m. EST, after rising to a session peak of $1,703.71, the highest since December 12.

U.S. February gold futures were up $36.80 at $1,702.80 an ounce in decent trading volume.

Gold is now up 9 percent for the year, after the metal briefly entered a bear market and fell 10 percent in December as the metal had appeared to lose its safe-haven status.

Silver rose 3.4 percent on the day to $33.09 an ounce.