Gold hits 5-month high on stimulus hopes
New York, September 1, 2012
Gold surged 2 per cent in heavy trading on Friday to a five-month high, and looked set to resume its years-long rally after Federal Reserve Chairman Ben Bernanke's key speech raised hopes of a new round of monetary stimulus for the US economy.
After trading in a range for four months, gold raced toward the $1,700 an ounce level last seen in March. It looked poised to test this year's high on improved investor sentiment and technical buying.
Gold posted its biggest daily gain in two months, sharply outperforming U.S. equities which edged up in late trade.
The metal posted a 4.5 percent gain in August, its third straight monthly rise and its biggest since January.
In a speech to central bankers in Jackson Hole, Wyoming, Bernanke spoke of "grave concern" about a stagnant labor market, and said the economy faced "daunting" challenges. He stopped short of saying the Fed was ready to buy government bonds in another round of quantitative easing, or QE.
"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 a dire projection for the economy," said Jeffrey Sica, chief investment officer of SICA Wealth Management, which has over $1 billion in assets.
Gold fell immediately following the release of Bernanke's speech, then quickly rebounded $45 per ounce, or almost 3 percent from its session low, as investors digested his comments and concluded they were stimulus friendly.
Spot gold rose 1.8 percent at $1,685.89 an ounce by 3:15 p.m. EDT (1915 GMT) for its biggest one-day gain in two months. It rebounded from a low of $1,646.73 an ounce.
It climbed to a session high of $1,691.80 an ounce, the highest since March 27.
U.S. Comex gold futures for December delivery settled up $30.50 an ounce at $1,687.60, with the highest trading volume in a month, preliminary Reuters data showed.
Year to date, gold is up 8 percent -- still off the 15 percent gain it notched in January when the Fed indicated it might unveil new monetary stimulus and said it would keep interest rates near zero until at least late 2014.
Since then, Bernanke's failure to hint at more easing had prompted gold investors to reduce bullish bets and threatened to end the metal's 11 consecutive years of bull rally. – Reuters