Gold Hits Fresh Record On Still-Accommodative U.S. Monetary Policy But Fed Inflation Concerns
27 April 2011, 4:48 p.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com
By Allen Sykora
Of Kitco News
http://www.kitco.com
(Kitco News) - Signs of continuing accommodative monetary policy from the Federal Reserve, yet apparent concerns about inflation among policy-setters, continue to underpin gold prices.
Prices began rising Wednesday short after the Federal Open Market Committee released its policy statement following a two-day meeting. They later hit a fresh record after Fed Chairman Ben Bernanke conducted his first post-FOMC press conference.
Around 4:20 p.m. EDT, June gold futures were $24.50, or 1.6%, higher at $1,528 an ounce on the Comex division of the New York Mercantile Exchange. They hit a peak of $1,530.70 that is a record for a most-active contract. July silver was up $2.891, or 6.4%, to $47.97 an ounce.
Around 4:20 p.m. EDT, June gold futures were $24.50, or 1.6%, higher at $1,528 an ounce on the Comex division of the New York Mercantile Exchange. They hit a peak of $1,530.70 that is a record for a most-active contract. July silver was up $2.891, or 6.4%, to $47.97 an ounce.
Collectively, the policy statement and Bernanke’s comments signaled that accommodative policy will continue, even if the Federal Reserve lets its second round of bond purchases, known as quantitative easing, expire at the end of June without launching a third round, analysts said. Economic conditions warrant a low federal-funds rate for an “extended time,” said the post-meeting statement, repeating the past view of policy-setters.
“The combination of the statement and Bernanke’s press conference left investors thinking even if QE2 ends, which they said it would, it doesn’t necessarily mean an end to accommodative monetary policies,” said Jim Steel, precious-metals analyst with HSBC. “They will remain intact at least for the foreseeable future, and that is supporting gold and silver.”
Bernanke also alluded to rising commodity prices, Steel added. This also supported a market that has drawn investor buying as a hedge against inflation.
“The buying was quite strong,” Steel said.
Bill O’Neill, one of the principals with LOGIC Advisors, cited the portion of the FOMC policy statement on inflation as one of the main factors underpinning gold. The statement said commodity prices have risen “significantly” since last summer and inflation has picked up in recent months, although policy-makers also viewed long-term inflation expectations as stable.
“In my opinion, the statement indicated a growing concern from the Fed for inflation,” O’Neill said.
Furthermore, during his press conference, Bernanke cited inflation worries as one of the factors prompting the Fed to not undertake another round of quantitative easing, at least for now.
O’Neill also said Bernanke’s remarks were seen as a “tame” defense of the U.S. strong-dollar policy.
“We did see the euro and pound rally significantly after that,” O’Neill said. A weaker dollar tends to support all commodities by making them cheaper in other currencies, and provides additional support for gold as a hedge against dollar weakness.
“If you put together the inflation implications in the FOMC statement and Dr. Bernanke’s comments, and the dollar factor, it’s bullish for gold,” O’Neill said. “I think there will be further follow-through.”
John Howlett, division vice president with Mitsubishi, said the Fed developments suggest that “cheap money is here to stay for an extended period” and also pointed out there were no dissenters in the FOMC policy vote.
“There is no reason to expect anything but an enfeebled dollar for who knows how long,” Howlett said. “The metals bulls have got control of the market and they aren’t the least bit worried.”
Some commentators described Bernanke’s first post-FOMC-meeting news conference as a non-event, but O’Neill said he disagrees with this assessment.
“While there was no Earth-shattering news in there, if you look through the nuances of the comments, they are worried about inflation and you have a concern about a weaker dollar,” he said. “To me, that’s what you should take out of it. Rather than a non-event, we really got a good eye into…the Fed thinking.”
By Allen Sykora of Kitco News; asykora@kitco.com
(Kitco News) - Signs of continuing accommodative monetary policy from the Federal Reserve, yet apparent concerns about inflation among policy-setters, continue to underpin gold prices.
Prices began rising Wednesday short after the Federal Open Market Committee released its policy statement following a two-day meeting. They later hit a fresh record after Fed Chairman Ben Bernanke conducted his first post-FOMC press conference.
Around 4:20 p.m. EDT, June gold futures were $24.50, or 1.6%, higher at $1,528 an ounce on the Comex division of the New York Mercantile Exchange. They hit a peak of $1,530.70 that is a record for a most-active contract. July silver was up $2.891, or 6.4%, to $47.97 an ounce.
Around 4:20 p.m. EDT, June gold futures were $24.50, or 1.6%, higher at $1,528 an ounce on the Comex division of the New York Mercantile Exchange. They hit a peak of $1,530.70 that is a record for a most-active contract. July silver was up $2.891, or 6.4%, to $47.97 an ounce.
Collectively, the policy statement and Bernanke’s comments signaled that accommodative policy will continue, even if the Federal Reserve lets its second round of bond purchases, known as quantitative easing, expire at the end of June without launching a third round, analysts said. Economic conditions warrant a low federal-funds rate for an “extended time,” said the post-meeting statement, repeating the past view of policy-setters.
“The combination of the statement and Bernanke’s press conference left investors thinking even if QE2 ends, which they said it would, it doesn’t necessarily mean an end to accommodative monetary policies,” said Jim Steel, precious-metals analyst with HSBC. “They will remain intact at least for the foreseeable future, and that is supporting gold and silver.”
Bernanke also alluded to rising commodity prices, Steel added. This also supported a market that has drawn investor buying as a hedge against inflation.
“The buying was quite strong,” Steel said.
Bill O’Neill, one of the principals with LOGIC Advisors, cited the portion of the FOMC policy statement on inflation as one of the main factors underpinning gold. The statement said commodity prices have risen “significantly” since last summer and inflation has picked up in recent months, although policy-makers also viewed long-term inflation expectations as stable.
“In my opinion, the statement indicated a growing concern from the Fed for inflation,” O’Neill said.
Furthermore, during his press conference, Bernanke cited inflation worries as one of the factors prompting the Fed to not undertake another round of quantitative easing, at least for now.
O’Neill also said Bernanke’s remarks were seen as a “tame” defense of the U.S. strong-dollar policy.
“We did see the euro and pound rally significantly after that,” O’Neill said. A weaker dollar tends to support all commodities by making them cheaper in other currencies, and provides additional support for gold as a hedge against dollar weakness.
“If you put together the inflation implications in the FOMC statement and Dr. Bernanke’s comments, and the dollar factor, it’s bullish for gold,” O’Neill said. “I think there will be further follow-through.”
John Howlett, division vice president with Mitsubishi, said the Fed developments suggest that “cheap money is here to stay for an extended period” and also pointed out there were no dissenters in the FOMC policy vote.
“There is no reason to expect anything but an enfeebled dollar for who knows how long,” Howlett said. “The metals bulls have got control of the market and they aren’t the least bit worried.”
Some commentators described Bernanke’s first post-FOMC-meeting news conference as a non-event, but O’Neill said he disagrees with this assessment.
“While there was no Earth-shattering news in there, if you look through the nuances of the comments, they are worried about inflation and you have a concern about a weaker dollar,” he said. “To me, that’s what you should take out of it. Rather than a non-event, we really got a good eye into…the Fed thinking.”
By Allen Sykora of Kitco News; asykora@kitco.com
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