Bernanke's downbeat comments for US employment prospects pushes gold prices higher on QE expectations

Bernanke's downbeat comments for US employment prospects pushes gold prices higher on QE expectations

The gold price shot up NZ$53.70 per ounce late on Friday in New York as investors reacted to US Fed boss Ben Bernanke's Jackson Hole speech. The equivalent NZ$ fx gain was less than the surge in the US$ gold price.

After trading in a range for four months, gold raced toward the US$1,700 an ounce level last seen in March. It looked poised to test this year's high on improved investor sentiment and technical buying.

The precious metal posted its biggest daily gain in two months, sharply outperforming equities which edged up in late trade. It posted a 4.5% gain in August, its third straight monthly rise and its biggest since January.

Bernanke said he had a 'grave concern' for the US labour market because despite the Fed's 'unconventional' monetary policy medicine, he was deeply disappointed that part of their remedies we not improving employment.

As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.

Markets took this, and other comments in his review of monetary policy, to mean that QEIII is on the way in the absence of a meaningful employment improvement soon.

Gold closed in London slightly down on the day at US1,648.50/ox in the afternoon fix, lower by US$9.25 than the morning fix. But in New York, after the Bernanke speech, it shot up to close at US1,691.60/oz or NZ$2,107.39/oz.

That New York close is the highest gold has been in NZ$ since June 5, and it was last at this level in US$ on March 13, 2012.

The peak gold price in NZ$ was reached at NZ$2,313.97 on November 15, 2011. In US$ the peak was US$1,895.00 on September 5, 2011.

Some analysts contend the Fed may stand pat due to data this week showing improved consumer confidence, consumer spending and the Fed's Beige Book report showing a pickup in retail activity.

In the absence of truly dire US economic indicators, it is unlikely that the Fed will launch any new easing before the US federal election said one metals trader. Other traders said the Fed could wait for next week's nonfarm payroll report before reaching a decision on stimulus at its September policy meeting on Sept. 12 and 13.

Meanwhile, the drums are beating louder for a return to the gold standard; the noise is loudest in the US.

More quantitative easing means the money supply is being debased - more "medium of exchange" chasing the same (and in a recession, possibly shrinking) volume of goods and sevices. Fear of debasement drives gold standard calls, and the calls are becoming a little more mainstream.

Some major investors, and more recently the US Republicans have called for a fix of the US dollar to gold - that is, a return to the gold standard.

However, it is open to consideranble debate whether these moves would bring a calming impact, or even address current problems. The current stable-but-uncertain systems may be replaced by unstable-and-uncertain processes if the US dollar were tied to the price of gold. Gold bugs might be among the few satisfied with such a big change. More on the implications here »

You can find detailed, up-to-date pricing for gold coins, bars/bullion, and gold scrap, all in both NZ$ and US$, here »

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