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As Gold Price Nears $1,700, Silver Surges

The spot price of gold and silver surged on Friday and Saturday following
remarks form U.S. Federal Reserve Chairman Ben Bernanke in which he hinted at an
additional round of quantitative easing, saying the bank is poised to provide additional
policy accommodation.

The gold price rallied to a five-month high at $1,692.70 per troy ounce in trading
Saturday, within a stone’s throw of the psychologically important $1,700 level, which the
market has not been able to retake since March 2012 when the priced dipped under that
level.

Precious metals markets roared following the Chairman’s remarks made at
Jackson Hole, Wyoming, during a symposium of central bankers.

Bernanke’s dovish statements set up a bullish trading tone for the last session in
August, with a hint from Bernanke that new unconventional US monetary stimulus will
be infused into the market in the relatively near-term future.

The spot price of gold gained 2.2 percent over Thursday’s close, but silver gained
a full 4.4 percent, ending the week at $31.68 per troy ounce. For the month of August,
silver rose 14 percent while gold only gained 5 percent for the month.

Bernanke’s comments, widely reputed as the stimulus behind the surge in the
precious metals markets, indicated that stagnation in the job market is a major concern
for the central bank, which is poised to provide additional policy accommodation to
promote a stronger economic recovery.

The timing of any action by the Federal Reserve, however, is highly disputed.
Some analysts believe Bernanke’s Friday comments were intended to lay a foundation for
an announcement of stimulus and some believe that the central bank will wait until after
pending US events to continue their stimulus programs.

Since the beginning of stimulus programs in 2008, the price of gold has more than
doubled as stimulus increases the value of real assets by depressing long-term interest
rates and possibly by instigating inflation.

The technicals of the current price breakout suggest it is a little more than just a
reaction to Bernanke’s Jackson Hole commentary, but the market has the full week to
bear that out.

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