Prices rally as the Federal Reserve chief says the central bank will discuss whether to implement any new stimulus measures at its September meeting.
By Alix Steel and Melinda Peer
Gold prices were staging a rally Friday, shrugging off an almost three-day selloff, after Ben Bernanke left the door open for more monetary easing.
Gold (-GC) for December delivery was adding $21 to $1,784 an ounce at the Comex division of the New York Mercantile Exchange at mid-day Friday. Gold has traded as high as $1,800 and as low as $1,759.50 while the spot gold price was adding $8.20, according to Kitco's gold index.
Gold (-GC) for December delivery was adding $21 to $1,784 an ounce at the Comex division of the New York Mercantile Exchange at mid-day Friday. Gold has traded as high as $1,800 and as low as $1,759.50 while the spot gold price was adding $8.20, according to Kitco's gold index.
Silver (-SI) prices were up 7 cents to $40.83 an ounce at mid-day Friday. The U.S. dollar index was declining by 0.6% at $73.81 while the euro was trading slightly higher vs. the dollar.
Federal Reserve Chairman Ben Bernanke offered no surprises in his speech at Jackson Hole Friday, but he did leave open the possibility for further intervention. Bernanke said the Fed is willing to step in if needed to trigger a stronger recovery, but barely discussed any monetary policy. The Fed's policy meeting in September is now scheduled to run for two days instead of one, which indicates stimulus is on the table. But whether or not there will be an agreement or policy shift is a different story.
Bernanke said data suggest that both temporary and more persistent factors have contributed to economic growth that was "considerably slower than the Federal Open Market Committee had been expecting," which prompted the Committee to downwardly revise its growth outlook for the coming quarters.
It was during the same conference a year ago that Bernanke first proposed a second round of quantitative easing to bolster the economy. The chairman said Friday, however, that any stimulus efforts would be discussed at the FOMC's upcoming September meeting.
"In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September," Bernanke said. He added, "The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."
"It's become an annual ritual to expect Jackson Hole to be a momentous occasion in all of these markets," says Jon Nadler, senior analyst at Kitco.com, when the annual meeting had been nothing short of a boondoggle until last year when Bernanke hinted at quantitative easing round two.
Nadler said before Bernanke's speech that the markets were set up for disappointment as Bernanke isn't in a position to pump more money into the system just because some macro data is disappointing and the stock market is suffering. There were also three dissenters at the last Fed meeting in early August who disagreed with keeping interest rates low until mid-2013 because of rising inflation, so printing more money seems like an even farther reach.
Nadler says that any disappointment would lead investors out of stocks and into gold, a trend they were already dabbling with early Friday, as hopes for more monetary easing waned. But, he added, "if it's an across the board sell-off in all types of assets that were predicating their further advances on easy money, if we have a wipeout of that nature, it could be a short-term across-the-board sell signal."
Gold has corrected 11% in two-and-a-half days, giving up half of its gains from its two-month rally which pushed the metal to an intraday high of $1,917 an ounce. The massive selloff could also be igniting bargain hunters wanting to take advantage of "lower" gold prices.
Nadler, who warned of a 35% correction two weeks ago, still stands by that prediction, which would take gold prices down to $1,247 an ounce.
Many experts, however, think that gold will trend higher as the macroeconomic backdrop has not changed. European governments are still struggling with ballooning debt and trying to save Greece from imploding. Germany is now making headlines with rumors swirling about a possible short-selling ban and rating downgrade, both of which were denied. With investors so headline-skittish, gold is fulfilling its role as a haven asset.
"The debt problems in the U.S., Europe and Japan are real," says Don Dion, founder of Dion Money Management and senior contributor for TheStreet. "They will not be solved any time soon. Gold will remain a safe haven until these issues are resolved."
Hurricane Irene is also picking up steam and starting to slam the east coast. Its path is expected to extend from North Carolina to Canada. Natural disasters or events of this kind are also another reason some investors buy gold, as a panic hedge.
Gold mining stocks were trading down at mid-day Friday. Barrick Gold (ABX) was down 0.4% to $49.56 while Newmont Mining (NEM) was off 0.6% at $60.46. Goldcorp (GG) was down 0.6% to $50.30, and AngloGold Ashanti (AU) was falling 2% to $43.63.
Miners will also be in the spotlight Friday as Peru raised taxes on the industry by $1.1 billion, which was much less than expectations. With Hugo Chavez, president of Venezuela, nationalizing gold mines, companies in precarious parts of South America and Africa could have been met with a similar fate or much higher taxes. This certainty coming out of Peru eliminates this risk.
