Gold surged to a five-month high in heavy trade on Friday after Federal Reserve Chairman Ben Bernanke's key speech fueled speculation of new U.S. stimulus in the near future.
At the economic symposium in Jackson Hole, Wyoming, Bernanke said that progress reducing unemployment was too slow and the U.S. economy faced "daunting" challenges but he stopped short of providing a clear signal of further monetary policy easing.
The metal fell immediately following the release of Bernanke's speech as markets were disappointed that the Fed chief did not send a strong message about a new round of bond-buyback known as quantitative easing (QE).
However, bullion quickly rebounded $35 per ounce, or 1.5 percent, from the low as markets later interpreted his comments as stimulus friendly. U.S. equities and commodities also reversed course to turn 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 a 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 at the annual meeting of central bankers, finance ministers and economists.
Spot gold rose 1.5 percent at $1,679.60 an ounce by 12:50 p.m. EDT (1650 GMT), rebounding from a low of $1,646.73 an ounce.
It climbed to a high of $1,683.95 an ounce, which marked the highest price since March 27.
U.S. COMEX gold futures for December delivery were up $25.30 an ounce at $1,682.40, with trading volume on track to finish at its highest level in a month, preliminary Reuters data showed.
Silver rose 2.8 percent to $31.26 an ounce.
ECONOMIC DATA, US ELECTION IN FOCUS
Other analysts contend the Fed may stand pat due to data this week showing improved consumer confidence, consumer spending and the Fed's Beige Book report of anecdotes showing a pickup in retail activity.
In the absence of truly dire U.S. economic indicators, it is unlikely that the Fed will take any overt action before the U.S. federal election, said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.
Some traders said the Fed could wait for next week's nonfarm payroll report before reaching a decision on stimulus at its September policy meeting on Sept. 12-13.
In the physical gold market, August sales of the U.S. Mint's American Eagle gold coins are on track to be the weakest for the month since 2007. Coin dealers, however, said business has picked up late in the month.
Among platinum group metals, platinum was up 1.9 percent at $1,529.49 an ounce, while palladium inched up 1.5 percent at $623.75 an ounce.
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