NEW YORK (MarketWatch) -- Gold futures surged to a new record high of $942.20 an ounce on Wednesday, after the Federal Reserve cut the fed funds rate by 50 basis points to 3.0%, meeting market expectations.

Gold for April delivery soared as high as $942.20 an ounce in electronic trading on the New York Mercantile Exchange, hitting a new record high. The contract was last up $4.20 at $935 an ounce.

Before the Fed decision, gold ended down $4.50 at $926.30 an ounce in regular trading.

The Federal Reserve's 50 basis points rate cut "sets the stage for a further rally in gold, but the upside target remains near $940 and probably not much beyond $950 at the moment," said Jon Nadler, senior analyst at Kitco Bullion Dealers.

"Conditions are becoming overbought, and South African production problems have been addressed for the time being," Nadler said.

The Federal Reserve decided to cut interest rates by a half-point and signaled that the door remains open for more cuts, indicating it's concerned about the economic outlook.

The bank also cut its discount rate, the interest it charges on direct loans it makes to banks, by a half-point to 3.5%. The Fed said that downside risks to growth remain and that it would act in a timely manner to address risk. See The Fed.

The latest rate cut comes on the heels of an emergency rate cut of 75 basis points that the central bank delivered on Jan. 22.

"The Fed remains behind the curve, having to cut in a hurried series, instead of a well-orchestrated cycle of adjustments that should have been initiated when the credit problem first emerged," Nadler said. "There is the risk of over-accommodating, and inflation also remains a threat."

The dollar weakened against most of its major counterparts after the Fed rate cut. The dollar index, which tracks the performance of the greenback against six other major currencies, declined 0.6% at 75.125. See Currencies.

"Before this easing cycle is over, we expect the Federal Reserve to bring US interest rates down to at least 2.50%," said Kathy Lien, chief strategist at Forex Capital Markets LLC.

"If the economy does not improve, interest rates could realistically return to 1%," Lien said. "As a result, the US dollar will not escape further weakness."

The U.S. economy slowed sharply in the fourth quarter, growing at the weakest pace since the economy was pulling out of recession in 2002, the Commerce Department reported on Wednesday. The 0.6% annualized growth rate in gross domestic product was lower than the 1.1% expected by economists surveyed by MarketWatch. Read more.

"I think that we will all be snapped back into reality when first-quarter GDP comes in either flat or negative," said Zachary Oxman, a senior trader at Wisdom Financial.

"I'd look for gold to continue to accumulate and run up to the $933.5 resistance level in the April contract," Oxman said. "Watch for funds and speculators to continue to buy into dips and for the market to be strongly supported at around $906."

Employment in the U.S. private sector grew by 130,000 jobs in January, according to the ADP employment report released Wednesday. Adding in some 25,000 government jobs typically added but not covered by the ADP report, it suggests non-farm payrolls grew by about 155,000 in January - more than double the 70,000 economists expected before the report. See Economic Report.

Also on Nymex, other metals prices were mixed. March silver finished down 4 cents at $16.760 an ounce in regular trading, but rebounded after the Fed rate cut and was last up 10.50 cents at $16.905.

April platinum ended down $34.50 at $1,687.40 an ounce and March palladium dropped $2.50 at $390.80 an ounce. March copper declined 7.25 cents at $3.2265 a pound.

Metals stocks rise

Indexes tracking mining and metals shares rose on Wednesday. The Philadelphia Gold and Silver Index XAU, +1.17% gained 1% at 189.30 points. The CBOE Gold Index GOX rose 0.9% at 197.05 points and the Amex Gold Bugs Index HUI, surged 1% at 470.50 points.

As for the sector's exchange-traded funds, the StreetTracks Gold Trust ETF GLD, +0.84% rose 1% at $92.06, the iShares Silver Trust ETF SLV, +2.18% gained 0.9% to $166.75 and the Market Vectors-Gold Miners ETF GDX, +1.28% added 0.7% at $51.05.

Gold warehouse inventories were little changed at 7.5 million troy ounces as of late Tuesday, according to Nymex data. Silver stockpiles rose to 135 million troy ounces, up 14,276 troy ounces, while copper supplies were unchanged at 13,978 short tons.