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As Fed Defends QE, Traders Get Bullish On Gold

Gold traded above $1,600 an ounce on Tuesday, its biggest one-day gain in three months, as Federal Reserve Chairman Ben Bernanke defended the U.S.'s bond-buying stimulus.

(Read More: CNBC Explains Central Banking)

The Fed's one power is to create money out of thin air and it's currently using that power. Critics argue the program, commonly referred to as quantitative easing, will further devalue the U.S. dollar and ultimately create inflation. In turn, many investors have bought gold as a hedge against inflation.

(Read More: Bernanke: My Inflation Record Is One of the Best)

In his testimony to the Senate Banking Committee on the central bank's semiannual report on monetary policy, Bernanke defended the Fed's easy monetary policy, overturning fears from last week that it might scale back QE. Recent comments from various Fed Governors suggested the program might soon come to an end, but Bernanke's comments quashed any such possibility.

"Today he reiterated that 'I'm the one you should listen to, not the little chatter that comes out of these meetings,'" said Anthony Grisanti, founder of GRZ Energy.

Source: World Gold Council

From the floor of the Chicago Mercantile Exchange, professional trader Jim Iuorio agreed, adding he remains bullish on gold. He plans to buy the April contract at $1,605 with a price target of $1,635 and a stop at $1,583.

(Read More: Gold Gains Most in 3 Months as Fed Defends Policy)

Rich Ilczyszyn, founder of iiTrader, also likes gold. He recommends buying the gold $1,680-strike call for $480. This will give you long gold exposure for the next 28 days, he said.

— By CNBC's Drew Sandholm with Reuters

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