Gold gains after Bernanke hints at stimulus

By Alix Steel and Melinda Peer, TheStreet

Updated at 3:47 p.m. ET

Gold prices rallied Friday, shrugging off an almost three-day selloff, after Ben Bernanke left the door open for more monetary easing.
 
Gold (-GC) for December delivery added $34.10 to settle at $1,797.30 an ounce at the Comex division of the New York Mercantile Exchange at mid-day Friday. Gold traded as high as $1,800 and as low as $1,759.50 while the spot gold price was surging $46.60, according to Kitco's gold index.

Silver (-SI) settled up 20 cents at $40.95 an ounce. The U.S. dollar index was down 0.6% at $73.82 while the euro was gaining 0.8% against the dollar.

Federal Reserve Chairman Ben Bernanke offered no surprises in his speech at Jackson Hole Friday, but he did leave open the possibility for further intervention. Bernanke said the Fed is willing to step in if needed to trigger a stronger recovery, but barely discussed any monetary policy.

It was during the same conference a year ago that Bernanke first proposed a second round of quantitative easing to bolster the economy. The chairman said Friday, however, that any stimulus efforts would be discussed at the FOMC's upcoming September meeting, which is now scheduled to run for two days instead of one. But whether or not there will be an agreement or policy shift is a different story.

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Gold prices and equity markets rallied, buoyed by expectations of another Bernanke life raft. More money in the system could trigger higher inflation, currently at 1.8% excluding food and energy, which makes gold more appealing as protection against paper currencies. Now expectations shift to the Fed meeting in September.

"It's become an annual ritual to expect Jackson Hole to be a momentous occasion in all of these markets," says Jon Nadler, senior analyst at Kitco.com. Nadler believes Bernanke isn't in a position to pump more money into the system just because some macro data is disappointing and the stock market is suffering. There were also three dissenters at the last Fed meeting in early August who disagreed with keeping interest rates low until mid-2013 because of rising inflation, so printing more money seems like an even farther reach.

Nadler says that any disappointment would lead investors out of stocks and into gold, a trend they were already dabbling with early Friday, as hopes for more monetary easing waned. But, he added, "if it's an across the board sell-off in all types of assets that were predicating their further advances on easy money, if we have a wipeout of that nature, it could be a short-term across-the-board sell signal."

Gold has corrected 11% in two-and-a-half days, giving up half of its gains from its two-month rally which pushed the metal to an intraday high of $1,917 an ounce. The massive selloff could also be igniting bargain hunters wanting to take advantage of "lower" gold prices.

Nadler, who warned of a 35% correction two weeks ago, still stands by that prediction, which would take gold prices down to $1,247 an ounce.

Many experts, however, think that gold will trend higher as the macroeconomic backdrop has not changed. European governments are still struggling with ballooning debt and trying to save Greece from imploding. Germany is now making headlines with rumors swirling about a possible short-selling ban and rating downgrade, both of which were denied. With investors so headline-skittish, gold is fulfilling its role as a haven asset.

"The debt problems in the U.S., Europe and Japan are real," says Don Dion, founder of Dion Money Management and senior contributor for TheStreet. "They will not be solved any time soon. Gold will remain a safe haven until these issues are resolved."

Hurricane Irene is also picking up steam and starting to slam the east coast. Its path is expected to extend from North Carolina to Canada. Natural disasters or events of this kind are also another reason some investors buy gold, as a panic hedge.

Gold mining stocks were rallying late Friday along with the precious metal and broader equities. Barrick Gold (ABX) was up 2% to $50.97 and Newmont Mining (NEM) was gaining 1.8% to $61.91. Goldcorp (GG) was climbing 2.3% to $51.75, and AngloGold Ashanti (AU) was adding 0.4% at $44.70.

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Miners were in the spotlight Friday as Peru raised taxes on the industry by $1.1 billion, which was much less than expected. With Venezuelan president Hugo Chavez nationalizing gold mines, companies in precarious parts of South America and Africa could have been met with a similar fate or much higher taxes. The certainty coming out of Peru eliminates this risk.