2011-09-10

President’s jobs program - unlikely to have a large impact on the direction of the gold price

The gold price slid $14.3 to $1,855.80 per ounce Friday night closing amid widespread liquidation in precious metals. In doing so, the price of gold surrendered approximately half of yesterday’s 2.9% rally and turned back into negative territory for the week. Yesterday the gold price held firm after Fed Chairman Ben Bernanke’s speech on the economy and U.S. President Barack Obama’s jobs speech last evening. COMEX gold futures – per the December 2011 contract – climbed to $1,889.10 in overnight trading, but tumbled to as low as $1,825.50 at approximately 6:15am ET on heavy volume.

According to Jan Hatzius, chief U.S. economist at Goldman Sachs. In a note to clients, Hatzius wrote that Bernanke’s “description of current conditions and the economic outlook was broadly in line with other recent Fed communication—including the August FOMC statement and minutes, and his recent speech at the annual Jackson Hole conference.”

Hatzius also noted that while Bernanke “continued to say that the Fed expected stronger growth in the second half, he again pointed out that some of the causes of weakness in growth earlier in the year could be more persistent. On inflation, Bernanke noted that while headline inflation had picked up, inflation is expected to moderate as ‘transitory influences wane.’ The Fed currently sees ‘little indication that the higher rate of inflation … has become ingrained in the economy’.”

Hatzius also published a report on Obama’s speech, noting that “The President’s proposal is larger than expected, with spending proposals and tax cuts both somewhat greater than expected. This proposal does not imply a significant shift in the fiscal restraint in 2012, but it is consistent with our expectation that the payroll tax cut will be extended, and the fact that some of the new proposals involve additional tax cuts increases the probability that Congress will enact them.”

While the President’s jobs program is receiving considerable attention yesterday, it is unlikely to have a large impact on the direction of the gold price due to the fact that its size is small relative to the Federal Reserve’s monetary policies, and – more importantly – because it does not address the fundamental structural problems in the U.S. of excessive public and private sector debt levels and policymakers’ misguided insistence on preventing debt restructurings from occurring.

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