Gold buyers reacted enthusiastically to the Fed's announcement on Wednesday that it would not reduce its $85 billion a month bond purchases, known as quantitative easing, or QE for short.
Gold prices leaped the most in 15 months, after the Fed's "no taper" move, to about $1,365 an ounce.
The metal had traded below $1,300 an ounce earlier in the day of the Fed announcement on the expectation that the Federal Reserve would taper its purchases by at least $10 billion a month.
Assuming the Fed elects to keep QE going full speed through the end of the year, the steady stream of "stimulus" will push the central bank's balance sheet beyond $4 trillion. Of that amount, roughly $3.6 trillion has been pumped into Wall Street since the 2008 financial crisis through the Fed's various QE programs.
The precious metals markets love that kind of liquidity being pumped into the system, which is why gold prices reacted so favorably when the Fed announced it would not take its foot off the QE gas pedal even a little.
The waves of QE have certainly contributed to the higher gold prices over the past five years. From December 2008 to June 2011, gold prices soared by more than 70% thanks to QE1 and QE2.
Despite a decline so far this year, gold prices today are still 60% higher than in late 2008 when Ben Bernanke started quantitative easing.
And while a QE taper is bound to happen at some point, there is little chance the Fed will do it before Ben Bernanke's term in office ends in January – and probably for a while after that.
"Asset purchases [that is, tapering] are not on a preset course," Bernanke said. He said it depends on the state of the U.S. economy and the Fed's interpretation of "confirming evidence."
Fed policies aside, however, fans of the yellow metal can count on several other factors to keep gold prices rising…