Gold rose over 1 percent in choppy trade on Thursday, with a sudden jump by over $20 per ounce within minutes as large buy orders were apparently triggered in the future markets. This comes unexpected to precious metals experts, as the gold price was supposed to be kept low by the usual large Wall Street players during todays speech by Bernanke, and was set to rally on Friday, when unexpectedly bad labor market numbers will come in and drive gold prices higher.
After trading lower in most of the morning session, gold rallied at midday in New York, just ahead of a speech by Federal Reserve Chairman Ben Bernanke and with financial markets already worried about escalating political tensions in Egypt and the Middle East.
It's clearly driven by buy-stops the way the activity happened. I think it's ETF related, said Carlos Perez-Santalla, broker at New Jersey-based PVM Futures.
Sizable volume of buy-orders from ETFs -- which were sellers earlier during the London PM gold fix -- hit the market once gold prices rose to $1,345 an ounce in midday, Perez-Santalla said.
Gold also benefited from the latest remarks by Bernanke, who said that the U.S. economic recovery still needs help from the Fed despite signs of improvement.
Bullion investors are paying close attention to Friday's U.S. January nonfarm payroll data. Traders said that gold prices could retreat sharply if the data promotes an optimistic view of the economy.
Spot gold rose 1.3 percent to $1,353.55 an ounce at 1:18 p.m. EST, after trading as low as $1,324.79. Bullion hit a high of $1,355.63, a two-week peak.
U.S. gold futures for April delivery settled up $20.90, or 1.6 percent, at $1,353.
Gold futures' volume was largely in line with its 30-day moving average, after notching lower than usual turnover in the past three sessions. Open interest, a gauge of market activity, climbed 141 lots to 463,048 contracts on Wednesday after a sharp decline last week due to liquidation by hedge funds.
Silver climbed 1.5 percent to $28.77 an ounce.
Investment interest has been lackluster of late, as the market favored riskier investments such as equities -- at gold's expense -- on signs of an improving economy.
Both the No. 1 iShares Silver Trust and the biggest gold ETF, the SPDR Gold Trust, saw hefty outflows in January, with iShares seeing its biggest ever one-month decline and the SPDR fund its second-largest such outflow.
Gold was initially pressured by hawkish rhetoric from European Central Bank President Jean-Claude Trichet, who had raised expectations that the ECB might move toward raising interest rates sooner rather than later.
(Trichet) was indeed pulling a bit away from the rhetoric from a couple of weeks ago ... pushing out the timing of rate hikes and thereby also increasing the risk of inflation, said Ole Hansen, senior manager at Saxo Bank.
(That is) probably the reason why gold has rallied a bit despite its current state of fatigue.
Thursday's encouraging data showing growth in the U.S. services sector in January also diminished gold buying in early trade.
In January, signs that the global economy started the new year on a solid footing with easing worries about a European debt crisis sent bullion to its first monthly decline in six months.
EGYPT, POLITICAL TENSIONS HELP
While concerns over the fallout from unrest in Egypt has prompted little new buying earlier this week, traders cited simmering political tensions in the Middle East in explaining gold's rally on Thursday.
Egypt's government struggled to maintain control of an angry nation, inviting Islamist opponents to political talks as protesters demanding the overthrow of Hosni Mubarak battled with his supporters on the streets.
Platinum inched 0.2 percent higher to $1,833.99 an ounce, while palladium gained 0.5 percent to $814.97.