Gold prices saw their biggest one-day gain in more than a year Monday after the U.S. Federal Reserve said last week it will continue to provide economic stimulus if needed.

The gold sector regained some lost ground, as the component rose about six per cent. The S&P/TSX composite index gained 73.25 points to 12,758.38 on top of four straight weeks of gains as traders also looked towards a busy earnings week for Canadian corporations

August bullion increased by $43.10 US to $1,336 US an ounce. That put it above $1,300 for first time in a month, and was the biggest one-day gain since June 2012.

"The fundamental reason is the backtracking by (Fed chairman Ben) Bernanke last week which was enough to remind everyone that there's TRIMs (trade-related investment measures) floating around and that's always good for the barbaric metal," said John Ing, president of Maison Placements in Toronto.

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Ing says that all the talk of Detroit's bankruptcy, the possibility of banks getting out of commodities, debt going higher and the European crisis has reminded investors that after a hiatus in the spring, "the bad news... (is) back in time for the fall, so there's the uncertainty factor at work."

Link to interest rate fears

Gold prices had declined sharply in late May after Bernanke said the central bank could start tapering its monthly US$85 billion of bond purchases if economic conditions improved.

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They started to revive last week, after he reiterated that the economy still needed stimulus. The TSX global gold sector had remained down 41 per cent year-to-date, but the price of gold was down only 20.2 per cent year-to-date after Monday's boost.

It had previously dropped by as much as 50 per cent, while the price of bullion fell 23 per cent so far in 2013.

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Ing expects the increases in gold prices to continue for the near term, reaching $1,350 and then $1,550, as investors will once again turn to gold to protect themselves against an uncertain economic and political climate.

"I think we turned this corner very sharply, and of course we've seen this in the gold miners index — a lot of stocks are down 50 per cent from their highs. They've been beaten up, so a lot of them are up six, 10 per cent today," he said.

At the close Monday on the TSX:

  • Barrick Gold Corp. was up $1.09 to $18.25 Cdn.
  • Goldcorp Inc. was up $1.63 to $29.97 Cdn.
  • El Dorado Gold Corp. was up 71 cents, to $8.11 Cdn.

A lower dollar also helped support commodity prices, as a weaker greenback made it less expensive for holders of other currencies to buy dollar-denominated oil and metals.