Gold sky-rocketed Monday as speculators took profits on a speech by U.S. Federal Reserve Chairman Ben Bernanke earlier in the day, taking it as an indication that loose monetary policy is set to continue. Gold rose 26.95 to hit 1691.75. That’s the highest settlement in nearly two weeks. Investors were buying up gold futures last week when the prices fell in hopes of a run to the 1700’s.
In an address to the National Association for Business Economics, Bernanke said he wasn’t yet sure that recent improvement in the labor market can be sustained, noting a still-high unemployment rate and the large number of people who have been out of work for more than six months. Further improvements could be supported by “continued accommodative policies”.
The fact that he’s maintaining loose policy and is open to further easing is providing a lift for gold.
The Fed’s policy of maintaining rates near zero and taking unusual measures to boost the economy, such as buying large amounts of bonds, has been credited, in concert with similar actions by other central banks, with lifting U.S. stocks out of a bear market three years ago and pushing up the price of gold to record levels. Recently a new policy or process called “sterilization” has been mentioned by the Wall Street Journal.
Bernanke’s comments suggest that he is not done providing liquidity to the market.
Investors rallying cry today is “QE 3 is alive and well despite other Fed officials commenting on the possibility of interest rate increase in 2013”
Not all economists and traders agreed the comments spelled a new program of high liquidity, or quantitative-easing three, was in store. But Bernanke’s speech was enough to sink the U.S. dollar, whose value is seen as being eroded by the Fed’s liquidity-boosting programs.
The dollar fell versus the euro and trimmed a gain versus the Japanese yen after U.S. Federal Reserve Chairman Ben Bernanke warned that faster economic growth was needed to ensure further declines in unemployment. He crushed the hopes of dollar bulls when he said accommodative monetary policy is needed to reduce unemployment. The euro dollar climbed from 1.3192 to 1.3344 on Mr. Bernanke’s words.
Investors have been searching for clues to prospects for further monetary stimulus measures by the central bank, which tend to undercut the dollar. Recent remarks by Fed officials and the statement issued by the rate-setting Federal Open Market Committee earlier this month were seen underlining notions the central bank would refrain from further stimulus, which could include expanding its bond-purchase program in some form.
That kind of monetary policy, often called quantitative easing, is considered akin to printing money and devalues a country’s currency.
Bernanke speaks again Tuesday evening. He has a way of moving markets and doing the unexpected. The gold markets seem to move violently each time he speaks. Many traders have developed the Bernanke Gold Strategy.