Updated from 12:29 p.m. EDT
Gold advanced on Friday, as a weakening dollar enticed investors to back into a resurgent metals market.
Gold for August delivery rose $11.40, or 1.9%, to close at $581.70 an ounce. Among other metals, silver for July delivery was up 16 cents, or 1.6%, to $10.13 an ounce and copper for July delivery was up 7.6 cents, or 1.7%, to $3.29 a pound.
After a month in corrective mode, metals and commodities have regained a positive tone in recent sessions, as Wall Street and global markets swallowed the outlook for higher interest rates.
Commodities, and especially metals, have been hit by concerns that central banks are raising interest rates to curb growth and inflation pressures, notably from soaring commodities prices.
But, helping matters, a reassuring
Chairman Ben Bernanke on Thursday hinted that inflation pressures stemming from higher energy and commodities prices haven't seeped into the broader economy in an alarming manner.
inflation expectations measures have remained within the ranges in which they have fluctuated in recent years and inflation compensation implied by yields on government debt has fallen back somewhat in the past month," Bernanke said.
He also said that the impact of higher energy and commodities prices on economic growth, "though clearly negative, appear to be manageable."
Stocks on Wall Street rallied following the speech, which was released after the close of metals trading on Nymex Wednesday. Stocks and metals had already shown signs of recovery in the previous session, after a slightly higher-than-expected consumer price index for May failed to invoke further rate-hike jitters.
The market already fully expects the Fed to hike rates at the end of June and is increasingly expecting another rate hike later this year, according to brokerage Miller Tabak.
"With the stellar recovery bounce in the equity market over the last two sessions and the U.S. Fed Chairman providing some macro economic optimism late yesterday, there is at least some countervailing force to the recent broad-based commodity liquidation mentality," writes Nell Sloane, metals analyst at NSFutures.com.
Adding fuel to the optimism for metals and commodities, the dollar was again weaker on Friday. A weakening greenback boosts the price of dollar-denominated commodities, such as gold, as it takes more of the currency to buy the same amount of gold.
The Dollar Index, which tracks the value of the greenback against a basket of key currencies, was recently down 0.1% at 85.55. The index had dropped 7.2% between March and May amid expectations that the Fed would pause its two-year long campaign to raise rates in June, and eventually stop raising rates altogether.
But after the April CPI and hawkish talk from the Fed convinced the market of a June hike, the Dollar Index has bounced back 3%. At this point, however, the dollar is struggling to find new fuel beyond expectations of one or two more rate hikes.
This explains why the dollar kept a weak tone even after more hawkish comments from St Louis Fed President William Poole overnight and Fed Governor Donald Kohn on Friday.
In spite of the better tone in metals over the past few sessions, the correction which has shaved off 21% from both the price of gold and copper and 28% from silver, has left many wary of jumping back into the commodities bandwagon.
"Whether or not these days will be archived in the record books as opportunities to sell in a bear market, or the last chance to buy in a corrected bull market on its way to the moon, will continue to be hotly contested in coming weeks," writes Jon Nadler, investment products analyst at bullion dealer Kitco.
Oil prices, which had helped gold's surge to 26-year highs amid tensions over Iran, the world's fourth-largest producer of crude, have also stabilized. A barrel, which had reached $75 as those tensions ran high last month, was recently down 30 cents at $69.20, amid jitters about growth and lower demand.
In choosing whether to jump back in the metals markets, Nadler says Kitco "certainly will not tie such a verdict to the gospel according to Bernanke or to the contradictory and deft political dance on display in Tehran."
"Although basic conditions that started the gold market on its course a few years ago are still part of the landscape in which it operates, these are days which test one's conviction about them," Nadler writes.
Meanwhile, shares of metals miners were heading lower in recent action, separating from the price action of the metals, to instead track weakness on Wall Street Friday.
The Philadelphia Gold and Silver index was down 0.6%, the Amex Gold Bugs index was down 0.7% and the CBOE Gold index was down 1%.
Among the biggest drops,
was losing 4.2% and
was down 2.8%.
The newly launched
Market Vectors-Gold Miners
exchange-traded fund, which tracks the performance of the
Amex Gold Miners Index
, was down 0.7%.
ETFs tracking the metals themselves were mixed. The
iShares Silver Trust
was down 0.6%, and the
StreetTRACKS Gold Trust
was up 0.5%.