Bernanke’s dovish remarks helped lift the price of gold back into positive territory

The gold price rose $6.04, or 0.4%, to $1,649.84 per ounce Thursday morning following a worse than expected report on the U.S. labor market.  The price of gold advanced as weekly jobless claims came in at 388,000 – above the 375,000 median estimate among 48 economists surveyed by Bloomberg.

On Wednesday the gold price oscillated between gains and losses as investors digested developments from the latest Federal Open Market Committee (FOMC) meeting.  The price of gold initially dropped to $1,625 per ounce following the release of the Fed statement, which did not include any signals that a third round of quantitative easing (QE3) is forthcoming.

However, the gold price bounced back to finish up by $2.56 at $1,643.80 after Chairman Ben Bernanke stated in his press conference that “We remain entirely prepared to take additional balance sheet actions if necessary…Those tools remain very much on the table” in the event that the U.S. economy requires further monetary stimulus.
 
Yesterday’s Fed statement included few surprises for the markets, according to Goldman Sachs chief U.S. economist Jan Hatzius.  In a note to clients, Hatzius wrote that “The committee retained its guidance that the funds rate would likely remain exceptionally low ‘at least through late 2014’.  Unsurprisingly, the committee decided to continue the ongoing Maturity Extension Program (MEP)—the ‘twist’.”

The Goldman Sachs economist went on to say that “The FOMC made a few small changes to its description of the economic backdrop. First, it removed the phrase that strains in global financial markets ‘have eased’. Second, the statement said that the unemployment rate ‘has declined’ instead of ‘has declined notably’, acknowledging the slower pace of decline more recently.”

While the Fed statement was largely in-line with market expectations, Bernanke’s dovish remarks helped lift the price of gold back into positive territory.  Furthermore, the Chairman’s comments reflected a prediction made earlier in the day by noted bond fund manager Jeffrey Gundlach – head of DoubleLine Capital, which manages over $30 billion.

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