Gold slumped almost to the $1,700 level early Thursday, then clawed its way back to close higher -- halting a vicious two-day sell-off that followed seven straight weekly gains.
The next test for the metal’s bull market comes at 7 a.m. PDT Friday morning, when Federal Reserve Chairman Ben S. Bernanke gives a speech on policy at a bankers’ gathering in Jackson Hole, Wyo. Gold buyers could swarm again if Bernanke strongly hints at more economic stimulus.
Near-term futures in New York ended regular trading Thursday up $5.70 to $1,759.80 an ounce, after losing nearly $135, or 7.1%, in the previous two sessions.
Money moved back into gold after the stock market was unable to sustain its three-day advance, said Adam Klopfenstein, senior market strategist at commodities trader MF Global in Chicago.
Gold futures fell as low as $1,707 early in the day, then rebounded as stocks slumped. The Dow Jones industrials closed off 170.89 points, or 1.5%, to 11,149.82, giving back one-third of the 504-point rally from Monday through Wednesday.
Silver, the "poor man's gold," gained $1.58 to $40.74 an ounce.
Gold, the classic haven, had been on a hot streak since late July as stocks plunged worldwide amid wild volatility. The price surged from $1,587 on July 21 to a record $1,888.70 on Monday. In intraday trading Monday gold briefly crossed $1,917.
But the latest wild rush into the metal also triggered warnings that profit-taking was overdue, with the price up 33% year to date through Monday.
“This was a necessary flush because everyone wanted to own gold,” Klopfenstein said of this week’s selling wave.
Bernanke may hold the key to gold’s short-term trend.
With the U.S. economy again struggling, Bernanke is expected to say Friday that the Fed stands ready to provide more help if necessary. That could mean another round of pumping cash into the financial system (a.k.a. money printing) -- which could be bullish for gold by raising the specter of further devaluation of the dollar.
Still, most economists say Bernanke won’t do more than lay out some possibilities. Whether that's enough to excite gold’s fans remains to be seen.
Carl Riccadonna, senior economist at Deutsche Bank Securities in New York, noted that the Fed chief in July said that two preconditions were necessary for the central bank to launch another big stimulus program. “One, economic weakness must prove more persistent than expected,” Riccadonna said in a report Thursday. “And two, deflationary risks must reemerge.
“The first condition is arguably already being met," he said, "but it is hard to make the case the latter is occurring in the present environment given that recent data have shown substantial residual inflation pressures.”
The consumer price index was up 3.6% in July from a year earlier, more than three times the annualized inflation pace of July 2010. Blame energy and food prices.
But then, rising inflation also has been good for gold. In fact, nearly everything has been good for gold over the last decade: The metal is on track to post its 11th straight annual gain, after ending 2000 at $274 an ounce.
-- Tom Petruno
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Photo: Gold bars. Credit: Paul Taggart / Bloomberg