( Reuters ) - U.S. gold futures rose early on Wednesday on strong follow-through buying and inflationary worries, extending gains from Tuesday when gold contracts surged to a 28-year high after the Federal Reserve half-percentage point rate cut.
Meanwhile, the tonnage growth in bullion exchange-traded funds (ETFs) showed no signs of slowing down. Bullion used to back No. 1 StreetTRACKS Gold Shares surged to a record 575.6 tonnes, data showed.
"There is some strong buying all around here, just follow-through from last night. We came off from the highs but still good buying and some hedge fund buying coming in here," Joseph Guzzardi of Sabin Commodities said from the COMEX floor in New York.
At 10:42 a.m. EDT (1442 GMT), most-active December gold on the COMEX division of the New York Mercantile Exchange was up $5.60 at $729.30 an ounce, dealing between $727.70 and $735.
"It does look to me like we are going to go higher. It's the day of cheap money again. The Fed dropped rate by more than people thought," said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois.
Shortly after the Fed's announcement on Tuesday, the December contract in electronic trading rallied to a high of $735.50, the loftiest level since gold was trading above $800 in January 1980. Gains accelerated when the benchmark contract exceeded the May 2006 high of $732.
Analysts said that the Fed's aggressive rate cut could have inflationary implications to the economy, especially when crude has been hitting record highs this week.
Gold is usually seen as a hedge against inflation.
Kaplan said that inflationary pressure should boost gold given the record prices in oil, wheat and copper. Reuters/Jefferies CRB Index rose to a one-year high in early trade on Wednesday.