Gold Futures Surge Most in 16 Months on Inflation Concerns

(Bloomberg) Gold surged the most in 16 months on speculation the Federal Reserve won't rush to raise borrowing costs to curb inflation. Silver jumped the most since March.

The Fed yesterday kept its benchmark interest rate at 2 percent, even as policy makers acknowledged heightening inflationary expectations. An OPEC official said crude oil may reach $170 a barrel soon. Gold reached an all-time high of $1,033.90 an ounce in March as fuel, corn and other commodities soared and the dollar fell to a record against the euro.

''The Fed said that inflation is a major concern, but they're not going to do anything about it, which made gold go ballistic,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ''The dollar is going to get slammed again.''

Gold futures for August delivery jumped $31.10, or 3.5 percent, to $913.40 an ounce at 12:18 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Feb. 21, 2007.

Silver futures for September delivery soared 75.3 cents, or 4.5 percent, to $17.36 an ounce. A close at that price would mark the biggest increase since March 5.

Before today, silver advanced 11 percent this year, while gold climbed 5.3 percent.

Traders trimmed bets on a rate increase in the next three months after the Fed's announcement yesterday. Interest-rate futures show a 26 percent chance the Fed will keep borrowing costs at 2 percent in September, compared with a 2 percent chance a week ago.