Gold and silver ETFs exploded to five-month highs as the
greenback weakened following Ben Bernanke's anxiously awaited
remarks at the annual central bank meeting in Jackson Hole,
Gold traders interpreted the
Federal Reserve chairman's speech
to mean there's a good chance for more quantitative easing, or
economic stimulus via printing money, even though he didn't
explicitly serve up the red meat they're drooling over.
In his speech, Bernanke stated: "Taking due account of the
uncertainties and limits of its policy tools, the Federal Reserve
will provide additional policy accommodation as needed to promote
a stronger economic recovery and sustained improvement in labor
market conditions in a context of price stability."
SPDR Gold Shares (
) climbed 1.77% to 163.36 as it bounced off of price-support at
its 200-day moving average. A break above this key level is
crucial in confirming a trend change.
Market Vectors Gold Miners ETF (
) surged 3.19%. But it's still trading below the 200-day line and
failed to make a new high.
IShares Silver Trust (
) jumped 3.36% to 30.43. It also rallied off support at its
Silver Miners ETF (
) flew 3.54% to 21.08. Like gold miners ETF, it's struggling to
clear its 200-day average.
PowerShares DB U.S.
Dollar Index Bullish (
), which measures the dollar against a basket of foreign
currencies, fell 0.58%.
, gold rose 1.89% to $1,687 an ounce. Silver lifted 3.42% to
$31.58 an ounce. Platinum and palladium also rose.
"Bernanke's focus on the country's persistent elevated
unemployment rate while he spoke gave the gold bulls the
rationale they needed to still believe that QE3 is imminent,"
said Alan Zafran, partner at Menlo Park, Calif.-based
. "In the bulls' eyes, it's not if, it's when."
Bernanke said the labor market was a "grave concern ... also
because persistently high levels of unemployment will wreak
structural damage on our economy that could last for many
"The unemployment rate remains more than 2 percentage points
above what most FOMC participants see as its longer-run normal
value, and other indicators -- such as the labor force
participation rate and the number of people working part time for
economic reasons -- confirm that labor force utilization remains
at very low levels," Bernanke said. "Further, the rate of
improvement in the labor market has been painfully slow."
Traders now are looking toward the next Fed meeting Sept. 12
and 13, when they hope it will announce another $600 billion
"Given the slow but steady pace of U.S. economic growth,
however, it may be premature for such an announcement to take
place," Zafran said. "It will likely not raise interest rates
until mid-2015 (from what was previously declared as being the
end of 2014), thereby providing a modestly stimulatory signal and
allowing for them to take a more aggressive QE3 action at a later
time should U.S. economic conditions worsen."
The Bearish Case For Gold
If no QE is announced in September, the gold traders will use
that as an excuse to book profits, Zafran said. The last time the
gold and silver broke above their 200-day averages, they rose for
about four weeks and quickly crashed below it.
"It would be unwise of the Fed to engage in QE while U.S.
monetary inflation is at its current level of almost 7%," said
Paul van Eeden
, president of Cranberry Capital, a private Canadian holding
company. "If monetary inflation in the U.S. falls again, I think
QE3 would become a high probability event. On the other hand, as
long as monetary inflation remains at current levels, I see QE3
as a much lower probability event."
Gold remains vulnerable to selling on fears that European
governments and debtors will have to sell their bullion to raise
cash to pay off their debts, says David Goldman, founder of
. Europe can't engage in quantitative easing like the U.S. and
he's doubtful the European Central Bank will go on a bond-buying
"I don't believe that the ECB will buy southern European bonds
in the face of German objections," Goldman said. "Moreover, the
Fed's capacity to act with QE is limited with yields so low."
He projects gold will rise at most to $1,700 an ounce by
year's end, a sliver above Friday's price.
"Gold loves the idea of low interest rates and QE," said
Janice Dorn, co-founder of
. "Gold will start to weaken when there is a hint that interest
rates are going higher."
In afternoon trade most major ETFS were higher.
SPDR S&P 500
SPDR Dow Jones Industrial Average (DIA): +0.75%
PowerShares QQQ (QQQ), a basket of the 100 largest
nonfinancial stocks on the Nasdaq, +0.66%.
IShares MSCI EAFE Index (EFA), tracking developed foreign
IShares MSCI Emerging Markets Index (EEM): +0.94%.
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