Gold falls after Bernanke says no QE3

In the Lead: “QE3 Sinks at Dock; Film at Eleven. No Gold in Ft. Knox; Film Now.”

Precious metals opened under selling pressure as the midweek trading session got underway this morning. The losses ranged from $12.20 per ounce in spot gold (opening at $1,532.50) to almost $1 in silver (trading at $36.21 per ounce on the open). Declines were also noted in platinum (it fell $22 to start at $1,811.00 per ounce) and palladium (it dropped $11 to the $796.00 mark).

Sentiment in the complex was largely similar to the goings-on in crude oil (it fell nearly 1% to $98.00), copper (it lost 2.5% this morning), and assorted other base metals. Black gold fell as traders remained wary that OPEC might decide to raise output quotas as it is cognizant that high oil prices are hurting the very recovery around the world that was expected to result in higher oil demand.

Some of the early losses in oil and in gold were reversed following reports that the OPEC ministers meeting in Vienna had failed to reach a consensus on production quotas. OPEC Secretary General Abdullah El-Badri said the effective decision was no change in policy and that OPEC hoped to meet again in three months. "Unfortunately we are unable to reach a consensus to reduce or raise production," said Mr. El-Badri. On that note, we promptly got back to $100+ per barrel oil and a tad higher gold. Thank you, OPEC. You saved the trading day.

However, the principal factor moving the commodities markets this morning was the same one that started the price slide in the afternoon hours on Tuesday; Mr. Bernanke’s speech. The Fed Chairman effectively trounced hopes that – despite persistent signs of US economic weakness – his institution will offer any additional stimulus following the expiration of the current so-called “QE2” program at the end of this month.

As well, Mr. Bernanke reiterated a number of key Fed views on Tuesday; namely, that it sees inflationary pressures (as reflected – or, shall we say, as caused – by hitherto spiking prices in commodities) as transitory, that jobs growth will improve after mid-year, and that fiscal consolidation in the US should remain a top priority for lawmakers on Capitol Hill.

While Mr. Bernanke presented a balanced argument that certain gains in certain commodities over the past year were due to actual supply/demand imbalances while others were largely speculation-driven (and thus transitory) phenomena, his overall take on the matter was that the longer-term picture will offer a moderation in prices and no meaningful damage on the inflation front, and that the US central bank is not responsible for the growth of bubbles in the commodities’ space.

Well, there are certainly some who disagree with the latter. French investment bank Natixis pointedly singles out the excess liquidity sloshing around in the financial system (courtesy of…the Fed and the ECB) as the prime suspect for the recent rise and expansion of a spherical type in the price of many a commodity.

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