Gold hits new records after Bernanke’s testimony

In the Lead: “The Moody’s Blues: Tuesday Afternoon”

The US dollar on the other hand gave back some of Tuesday’s gains and slipped to 75.71 on the trade-weighted index this morning as the euro touched $1.41 in early dealings. The on-going flow of debt-related news kept the gains in the euro (as well as the losses in the dollar) fairly limited as the feeling that fresh news could reignite selling remained very much on the front and center of the trading scene in various currency dealing rooms. For the moment, US dollar bulls have been dealt a bit of a setback in the wake of the release of the Fed’s meeting minutes yesterday. The Fed’s membership remained divided on whether or not to add additional stimulus when they last met in June.

The one thing they all agreed upon however, was the fact that if the debt ceiling issue is not tackled before the August 2 deadline, then “even a short delay in the payment of principal or interest on the Treasury Department’s obligations would likely cause severe market disruptions and have a lasting effect on US borrowing costs.” Dollar bulls also remain wary ahead of Fed Chairman Ben Bernanke's semi-annual testimony on the economy and monetary policy before the House Financial Services Committee, which was set to start at 1400 GMT today.

Albeit yesterday’s “take-away” from the Fed minutes was the fact that the US central bank in principle decides how, but not when to take away the accommodation punchbowl from speculators, today’s speech by Mr. Bernanke reignited the hope that said punchbowl – in one form or another – will remain on the scene. The Fed Chairman suggested that if US economic conditions erode to some unacceptable point, then the Fed will need to consider certain novel measures (such as for example extending the maturity of its holdings) with which to try to rev up the US’ economic engine.

Although they really should not have done so, Mr. Bernanke’s remarks shocked the currency markets in a flash; the US dollar fell 0.70 on the index to suddenly trade at 75.25 while the slippage also quickly made for a new record in gold at a level some $10 above the previous $1,577.85 mark. Silver followed suit (and then some) gaining 5.5% and reaching a high of $38.36 on the day.

Gains on the order or 2% and 2.6% were noted in the platinum/palladium duo. This time, the gains in the industrials’ niche were clearly not driven by optimism surrounding demand from a growing economy but were dollar-selling driven and harked back to the commodity frenzies that everyone has grown accustomed to in the wake of relentless Fed easy money policies.

In the interim, the war of words on Capitol Hill continued without pause. GOP Senate leaders attacked President Obama’s credibility and belittled his efforts to cobble together a “grand bargain” plan that contains a mix of tax hikes and spending cuts. Words such as “smoke and mirrors” and “unfortunate” were being liberally sprinkled about in the skirmish.

The whopper however – and one that shows exactly where some folks are really coming from – was uttered by Sen. McConnel of Kentucky, who declared that “as long as this president is in the Oval Office, a real solution is unattainable.” Evidently, Sen. McConnell has lost track of the fact that the calendar still shows “2011” and that the August 2 deadline will not wait for the US elections to take place and perhaps realize his “dream” of an “Obama-less” White House…

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