Gold rose to its highest since April in volatile trade on Friday on speculation of new U.S. stimulus after Federal Reserve Chairman Ben Bernanke said in a key speech that progress to bring down unemployment was too slow and the central bank would act as needed.
The metal fell immediately following the release of Bernanke's speech at the economic symposium in Jackson Hole, Wyoming as markets were disappointed over a lack of imminent stimulus. Investors had expected the Fed chief to send a strong message about a new round of bond-buyback known as quantitative easing (QE).
However, bullion quickly rebounded $30 per ounce, or almost 2 percent, f rom the low as markets later interpreted his comments as stimulus friendly. U.S. equities and commodities also reversed course to turn sharply higher as the dollar fell sharply after Bernanke's remarks.
"The main catalyst for the reversal in gold has been that Bernanke used the words 'grave concern' and the interpretation is that there's going to be more QE if he's using such dire projection for the economy," said Jeffrey Sica, chief investment officer of SICA Wealth Management, which has over $1 billion in assets.
"The stagnation of the labor market in particular is a grave concern...because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," Bernanke said in a prepared speech at the annual meeting of central bankers, finance ministers and economists.
Bernanke said it had to weigh the costs as well as the benefits of more monetary stimulus, although he hinted the costs may be worthwhile.
Spot gold was up 1.1 percent at $1,674.30 an ounce by 11:08 a.m. EDT (1508 GMT), rebounding from a low of $1,646.73 an ounce.
It climbed to a high of $1,677.80 an ounce, which marked the loftiest price since April 12.
U.S. COMEX gold futures for December delivery were up $19.90 an ounce at $1,677, with trading volume on track to finish at its highest level in a month, preliminary Reuters data showed.
Among other precious metals, silver jumped 2.2% to USD 31.08 an ounce. Platinum was up 1.5% at $1,523.99 an ounce, while palladium inched up 0.9% at $620.50 an ounce.
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