Gold prices snapped a long-running downtrend as Fed dovishness and fears over unrest in Iraq sparked safe-haven buying.
Spot gold prices popped 2.7% to $1,313 an ounce in New York trade. Gold futures broke above the round, psychologically significant $1,300-an-ounce level for the first time in nearly a month.
The metal also broke above the 200-day moving average, a key chart level, at $1,290 an ounce. It sucked in the technically oriented traders, said Peter Eliades, publisher of the Stockmarket Cycles newsletter in Squaw Valley, Calif.
"It is important that it remains above the $1,290 (an ounce) area in order to maintain a bullish outlook," Eliades said in an email.
SPDR Gold Shares ( GLD ), the largest ETF backed by gold bullion, jumped 3% to 126.93. It lifted its year-to-date gain to 9% while tapering its 12-month loss to 3%.
At the same time the dollar, which tends to move opposite gold, weakened after Federal Reserve Chairwoman Janet Yellen said Wednesday that the central bank will keep interest rates near zero for a long time after quantitative easing ends.PowerShares DB US Dollar Index Bullish ( UUP ), which measures the greenback against a basket of the most widely traded currencies, fell 0.2% to 21.43, a one-month low. Investors also fear turmoil in Iraq, gold experts say.
"Put all three together and you've got a rush to gold," Gartman Letter publisher Dennis Gartman, based in Suffolk, Va., said in an email.
Seasonal demand seen over the past 30 years for gold jewelry kicks off in summer and tends to rise through Chinese Lunar New Year, said Frank Holmes, CEO of U.S. Global Investors in San Antonio, Texas, with about $1 billion in assets under management.
Market Vectors Gold Miners ETF ( GDX ), tracking large-cap names, gapped up 5% to 25.83, a three-month high. It finally snapped a three-year losing streak this year, rallying 22% while the SPDR S&P 500 ( SPY ) added 6%. But on a one-year basis, GDX has lagged SPY by a whopping 22 percentage points.
Ron Delegge, founder of ETFGuide.com in Encinitas, Calif., started recommending GDX in early June as a contrarian buy due to "extremely negative sentiment."
"And now we have got a geopolitical situation helping boost price of gold," Delegge said.
Despite its severe underperformance, GDX trades at a premium compared with SPY. It carries a price-earnings ratio of 26, price-to-book value of 1.1 and price-to-sales of 2.1, according to Morningstar. SPY trades at forward P/E of 17, P/B of 2.3 and P/S of 1.7.
The more speculative, volatile play,Market Vectors Junior Gold Miners ETF ( GDXJ ) flew 7% to a three-month high of 43.03. It is deeply undervalued , which value investors and contrarians love. GDXJ trades at a forward P/E ratio of 13, P/B of 0.82 and P/S of 1.2.
IShares Silver Trust (SLV) soared 5% to a one-month high 19.93. It broke above its long-term 200-day moving average for the first time in three months, thereby confirming a technical uptrend.
Global XSilver Miners ETF (SIL) rose 7% to 14.09, a three-month high. Its valuations are costly compared to the stock market . It trades at 32 times earnings, 1.2 times book value and 2.7 times sales.