Gold jumped the most since November as Federal Reserve Chairman Ben S. Bernanke defended the U.S. central bank’s asset purchases, boosting demand for bullion as a hedge against stimulus-fueled inflation.
“We do not see the potential costs of the increased risk- taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said today in testimony to the Senate Banking Committee in Washington. “Inflation is currently subdued, and inflation expectations appear well anchored.” Expectations that the Fed would slow asset purchases helped send gold prices down 3.6 percent this year.
“Prices have been vacillating, and finally, the pendulum has moved in its favor as Bernanke’s testimony shows that stimulus will continue,” David Meger, the director of metals trading at Vision Financial Markets in Chicago, said in a telephone interview.
Gold futures for April delivery jumped 1.8 percent to settle at $1,615.50 an ounce at 1:30 p.m. on the Comex in New York, the biggest gain for a most-active contract since Nov. 6. Trading volume was 62 percent higher than the average in the past 100 days.
“We think gold prices are going to go higher,” Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California, said in a telephone interview. “We have sold gold puts across funds.”
A put option gives the holder the right to sell the underlying security at a specific price within a given time, while a call option grants holders the right to buy.
Prices are due for a rebound and reasons for owning gold remain intact, Morgan Stanley wrote in a report dated Feb. 25. On the same day, Goldman Sachs Group Inc. said in a report that gold’s price cycle has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings collapse. The bank cut its three-month target to $1,615 from $1,825 and lowered the 12-month forecast to $1,550 from $1,800.
Silver futures for May delivery gained 0.9 percent to $29.32 an ounce in New York.
On the New York Mercantile Exchange, platinum futures for April delivery fell 0.3 percent to close at $1,616.50 an ounce, the fourth loss in five sessions. One ounce of platinum bought as little as 0.9945 ounce of gold in London today, the least since Jan. 22, data compiled by Bloomberg show.
Palladium futures for March delivery dropped 1.3 percent to $741.90 an ounce on the Nymex. Trading in palladium and silver were more than twice the 100-day average for this time of day.