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(Kitco News) - After some initial uncertainty, gold prices ran up to fresh five-month highs Friday as traders seemingly concluded that Federal Reserve Chairman Ben Bernanke’s highly anticipated Jackson Hole, Wyo., speech meant there is a good chance for further easing from the central bank.

The metal hit a multi-month high at the start of the week as expectations built for more monetary accommodation following minutes of the July 31-Aug. 1 meeting of the Federal Open Market Committee that were construed as dovish. This led to ideas that Bernanke might signal, during a speech Friday at a Fed symposium in Jackson Hole, Wyo., that more easing is imminent.

Bernanke wasn’t specific but offered enough clues to keep the bulls hopeful. Equities also benefitted, while the euro hit a $1.2638 high that was its strongest level against the U.S. dollar since the beginning of July.

The Fed chairman defended the past two rounds of quantitative easing, in which the central bank buys long-term Treasury securities in an effort to push down long-term yields. He said the benefits outweighed the costs. Further, Bernanke lamented the weak state of the job market and said policy-makers stand ready to act as needed.

“The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," Bernanke told the Jackson Hole gathering.

Still, the most-active Comex December gold contract flipped from slightly higher to lower just after the release of Bernanke’s speech.

“The quick in-and-out trading crowd got scared,” said George Gero, precious-metals strategist with RBC Capital Markets Global Futures. There might have been some “buy-the-rumor, sell-the-news” liquidation, he continued. Further, a trader pointed out, the release of Bernanke’s remarks came around the same as U.S. economic reports showed rises in the University of Michigan/Thomsen Reuters consumer-sentiment index and July factory orders.

But as traders continued to digest Bernanke’s speech, gold soon turned higher since it appears interest rates will remain low for some time, Gero said.

Around noon EDT, gold for December delivery was $25.80, or 1.6%, higher at $1,682.90 per ounce on the Comex division of the New York Mercantile Exchange. It hit a peak of $1,685.20 that was its strongest level since April 13. December silver was up 85.9 cents, or 2.8%, to $31.305 and hit a high of $31.37 that was its strongest level since April 30.

“When the comments came out, the market set back,” said Sterling Smith, futures specialist with Citi Institutional Client Group. “Then it turned and rallied precipitously shortly thereafter. The hope and idea we’re going to see some sort of quantitative easing is still out there.”

Hopes for further stimulus in China, coupled with eurozone issues, also remain supportive, Smith added.

“The initial market interpretation (of Bernanke’s remarks) was that the chairman didn’t deliver as much as at least some in the market would have liked,” said Bart Melek, director of commodity strategy with TD Securities, in reference to gold’s initial slide.

However, Melek continued, the market “re-evaluated” and focused on Bernanke’s comments about the weak labor market. Traders then concluded “maybe it does make sense to think the Federal Reserve may act as soon as the next FOMC meeting on Sept. 13.”

This prompted a rally not only in precious metals but other commodities as well, Melek added. Nymex October crude oil was $1.56 higher at $96.18 a barrel, and three-months copper gained $38.50 to $7,606 a metric ton on the London Metal Exchange.

A research note from Nomura Global Economics said while Bernanke’s speech did not break new ground, he “made it clear that more needs to be done, but does so without hinting at the timing of when more monetary policy easing could be delivered.” Nomura said it looks for the Fed to purchase more long-term securities before the end of the year.

“This could come at the next meeting, but we do not think that this is the most likely outcome,” Nomura said. “We expect the FOMC to extend its forward guidance on interest rates into 2015 at the next meeting.”

Jimmy Tintle, owner of GreenKey Alternative Asset Services, figured Bernanke is “going to go month to month” on when to undertake more quantitative easing. However, Tintle cautioned that the first two rounds have not dented unemployment as much as hoped, and whereas QE helps the stock market, it hurts savers and retirees.

“The timing of it is still unknown,” Tintle said. “We all know unemployment is bad. It hasn’t been below 8% since 2008.”

December gold took out initial chart resistance at the multi-month high of $1,679.30 an ounce hit on Monday. Smith put some psychological resistance around $1,700, with chart resistance around $1,725.

He offered one bit of caution, however, commenting that gold historically has sometimes behaved unusually around holidays with big drops or spikes, sometimes without provocation. Thus, he continued, it will be important for bulls to see gold settle higher when traders resume from a long holiday weekend on Tuesday.

Friday’s moves did occur in thin pre-holiday trading conditions, with U.S. and Canadian markets both closed for holidays on Monday.

“The funds are back in,” Gero said, citing recent rises in the number of open positions. “They may add to their positions if technical buy points are reached.”

By Allen Sykora of Kitco News; asykora@kitco.com

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