Gold prices continue to fall as India remains sidelined

In the Lead: “Ben rattles Ron’s gilded cage”

Another factor contributing to the malaise manifest in the precious metals space is the visible slowdown in China. As mentioned above, sliding silver imports do not exactly reflect an economy that is roaring along at full clip. News from Australian giant BHP Billiton indicates that the Chinese demand for iron ore is turning…rusty and that the firm now expects demand growth for that commodity to only grow in the single digits. As a consequence, an Australian government forecaster has said that there are expectations that iron ore prices might experience a drop of as much as 8.5% this year.

While on the topic of China, it is also worth noting that analysts expect the country’s banking sector to post a rise in non-performing loans on the order of 40% (!) in 2012. The ratio of soured loans at China’s five largest banks could approach the 2% level next year, despite last quarter’s hefty earnings by that country’s 3,800 banks ($35.4 billion). China watchers have noted that in the wake of the perceived ending of China’s boom, in 2010, defaults on bank loans began to swell and that the actual number of non-performing loans may well be much higher than the official data might have us believe is the case.

Yesterday, Fed Chairman Bernanke, following a lecture he gave at George Washington University, made a (for him) rare reference to gold and the gold standard. Once again, in doing so, he managed to agitate supporters of the Ron Paul-flavored idea that the US ought to return “sound money” via to a gold standard. Mr. Bernanke stated that, owing to the limited global supply of gold that would be available for such a peg, as well as due to the fact that any central bank on such a standard would be incapable of responding to economic cycles in an adequate fashion, the revival of a gold-backed currency is…simplistic, anachronistic, and rather wishful thinking.

Mr. Bernanke also noted that, on a year-on-year basis, a gold-based peg might in fact not provide the long-term price stability that many believe it does. He cautioned that, under a gold standard, the money supply goes up and interest rates go down during periods of economic growth and that such a paradigm is diametrically the opposite of what a central bank normally aims to do. He called the gold standard idea a “waste of resources.”

Mr. Bernanke was heard from once again, but not on the topic of gold, when he gave another speech, in front of a Congressional Committee. He cautioned that Europe’s financial crisis may not yet be over and that the EU must aid the region’s banks at this most ‘difficult’ of times. The Fed Chairman also noted that the majority of US banks do have adequate amounts of capital to be able to weather a possible new crisis if one were to emerge. Meanwhile, speaking of that same Fed that some would like to abolish altogether, it turns out that the institution and its member district banks earned more than $77 billion in 2011 —  the second highest income in its near-century-long existence. The US central bank also reported that it would not record a loss on any of its emergency loan programs.

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