Bernanke “Laying the Groundwork” for More Easing, Says El-Erian

Gold prices rebounded from an initial sell-off despite the fact that Federal Reserve Chairman Ben Bernanke failed to signal that a third round of quantitative easing (QE3) is forthcoming at his speech in Jackson Hole, Wyoming.  The spot gold price slid from near $1,665 to as low as $1,648.39 per ounce following the release of Bernanke’s prepared remarks, but soon after surged toward $1,680 as the U.S. dollar remained lower by 0.7% against a composite of foreign currencies.

Immediately after the Federal Reserve published Bernanke’s Jackson Hole speech on its website, financial markets moved into risk-off mode based in large part on the absence of any QE3 mention.  Gold prices declined alongside equities and cyclical commodities, while the U.S. dollar pared its losses.

With his speech this morning in Jackson Hole, Wyoming, Ben Bernanke has prepared the markets for additional quantitative easing – according to PIMCO CEO Mohamed El-Erian.
In an interview with CNBC following Bernanke’s comments, El-Erian contended that “First, Bernanke provided a very robust defense of what he’s done so far. Secondly, he told usp Problems were cyclical, not structural. And finally, he told us that costs are containable, they’re manageable. So, in my opinion, he is laying the ground for more activism from the Fed.”
When asked where he would invest based on his outlook, El-Erian mentioned gold as one of several asset classes that would help protect against the currency debasement inherent in the Fed’s easy monetary policies.

Several other market observers offered a similar take on the Fed Chairman’s remarks, including Goldman Sachs chief U.S. economist, Jan Hatzius.

In a report to clients, Hatzius wrote that “Fed Chairman Bernanke’s Jackson Hole speech makes the case for unconventional monetary easing–in particular, balance sheet and communication policies–as an effective tool, even if the ‘hurdle is higher’ for the use of such policies. In a dovish conclusion, he notes the poor state of the labor market as a ‘grave concern’.”

While the markets were already aware that the U.S. central bank stands ready to provide additional monetary easing if necessary, Bernanke’s comments this morning further hammered home this notion.  Moreover, judging by the rebound in the price of gold and gold stocks today, investors appear to believe that QE3 may be right around the corner.

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also wai...
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad ...
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the...
Read more