Friday, January 11, 2008

How the Gold Market Reacted to Bernanke’s Comments

There is Bernanke’s speech yesterday about cutting rates and then there is how the gold market reacts to the speech. It is safe to say that the speculators will push up the price of gold. From Market Watch:

Gold futures nudged to within 10 cents of the $900 per-ounce level in electronic trading Friday, extending a record run after comments by Federal Reserve Chairman Ben Bernanke were widely interpreted as signaling further rate cuts.

February gold futures touched a high of $899.90 per ounce in Australian trading before pulling back to $894.90 by late afternoon in Central Asia, gaining $1.30 from its New York close.

Gold jumped $11.90 to a record $893.60 per ounce on the New York Mercantile Exchange Thursday as traders judged Bernanke's comments as dollar negative.

"It is likely to continue going higher overall in the bigger picture perspective as the Federal Reserve is likely to continue slashing interest rates with the market now expecting 50 basis points," said Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney.

In an unusually blunt speech Thursday, Bernanke said more interest rate cuts were on the way as the U.S. central bank wrestles with a deteriorating economy brought on by a struggling housing market, high energy prices and weaker stock market.

The dollar extended losses in Asian trading following Bernanke's comments. The greenback fetched 109.01 yen in late trading Friday, compared to 109.62 yen in late Tokyo trading Thursday.

Jurg Kierner, managing director of Swiss Asia Capital in Singapore, said it was only matter of time before gold took out the $900 per-ounce level.

"The outlook for the gold market is probably the best we've had for 30 years," Kierner said, adding a cocktail of geopolitical and financial market instability were set to spur demand for the metal.

"The fact that everybody is asking for cheaper money and more money tells you the banks are burning," he added. "Inflation is out of the bag."

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