Gold Bullion (GOLD)

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Knee jerk gold plunge after Bernanke statement doesn't promise more QE

Fed chairman Ben Bernanke's statement today was, in reality, a non-event, but the gold price dived anyway when he refrained from suggesting any likelihood of monetary easing ahead.
Author: Lawrence Williams
Posted: Thursday , 07 Jun 2012

LONDON -

U.S. Fed chairman Ben Bernanke's statement to Congress earlier today gave no clear indication of whether or not the Fed was likely to implement more Quantitative Easing - indeed his statement was as obscure in its content as we suggested in an earlier article - Silver surges as gold breakout maintained - where we stated "Although there have been signs from the Fed that further easing may be on the table again, you can't bank on Bernanke to do any more than refer to this possibility in the most oblique terms". However his lack of direction on what many had been looking for was sufficient to drive the gold price back down below the $1600 level again in a knee-jerk reaction from the gold traders on COMEX - and perhaps from those who have a vested interest in keeping gold and silver prices down.

One hardly could seriously have expected Bernanke to do anything else - it's not in his nature - but the expectation was there that he would indicate at the least either an extension of Operation Twist, whereby the Fed sells short-term Treasury bonds and purchases long-term Treasury bonds, in order to drive long term interest rates downwards (this programme is due to end at the end of this month) or some other form of monetary stimulus ahead. However he did not rule any of this out either, while other Fed officers have suggested that such things may be on the cards at the Fed's next meeting later this month.

Thus the Bernanke testimony was, in reality, a non-event. In reality it should have had little or no effect on the precious metals markets, but that doesn't seem to be the way the market works these days. It had been widely predicted that if Bernanke did not suggest further monetary easing ahead that gold and silver prices would fall - and this became thus a self-fulfilling prophecy. Gold slid from a little over $1620 right down to the $1580 level before making a small recovery to $1590 which may, or may not, be sustained, while silver fell from $29.60 to $28.40 before too making a small recovery.

One suspects that, once the fact that nothing has actually changed from Bernanke's statement, then gold could steady at around the $1590 level, or even break back through $1600, but no significant move one way or the other seems likely to follow until the Fed meeting on June 19-20 unless other economic news or data comes out seen as likely to impact any decision for or against further easing. Gold and silver remain in a volatile area with the balance capable of being tipped sharply one way or the other in the next few weeks.

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