Gold Prices Pause Awaiting Bernanke Testimony

Fed Chairman Ben Bernanke will give his semi-annual testimony before a Senate panel on Tuesday and the House Financial Services Committee on Wednesday. Although investors will be keeping a close watch for any mention of QE3, it is expected the Mr. Bernanke will once again scold/warn politicians that we are rapidly approaching a financial cliff, if Congress fails to act soon. This cliff could be as much as $720 billion as tax breaks expire on December 31 and automatic spending cuts kick in January 1. At this time, there appears little chance that Congress will act prior to the November elections. Mr. Bernanke should make it clear that QE3 is still on the table if the economy continues to deteriorate, but many analysts feel he will wait until his Jackson Hole speech in August, before brings up the subject of QE3.

Big banks doing bad things are once again in the news. The U.S. Justice Department is investigating potential criminal charges against big banks and individuals for manipulating key global interest rates. Libor is the London interbank rate that is set by a small and select group of major banks. Barclays Bank has already been fined $450 million for fixing Libor. Other banks being investigated include Citigroup, J.P. Morgan Chase, the Royal Bank of Scotland and Deutsche Bank AG. There is also the question of whether regulators knew about the situation, but turned a blind eye.

Retail sales fell for the third straight month in June, further eroding confidence in a fragile economic recovery. Analyst expected retail sales to rise by 0.2%, but data released this morning by the Commerce department shows spending slipped by 0.5%. This report could raise hopes the Federal Reserve will have to come in sooner or later with a new round of quantitative easing.

At 9AM EST the APMEX precious metal prices were:

  • Gold price – $1,590.60 – down $2.90
  • Silver price – $27.35 – down 10 cents
  • Platinum price – $1,421.90 – down $13.30
  • Palladium price – $582.90 – down $3.80
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APMEX End of Week Report for 6/8/2012

Bernanke Speaks:

Official portrait of Federal Reserve Chairman ...

Official portrait of Federal Reserve Chairman Ben Bernanke. (Photo credit: Wikipedia)

Gold has had ups and downs this week. The market has many investors questioning the long term outlook for Precious Metals.  As with all investments, there will be unknown factors.  At present, there is the European economic crisis, the Chinese economic slowdown, and underachieved goals for a better American economy. With these situations being in play, it could signal good news for investors. Dennis Gartman, author of The Gartman Letter, said, “The trend for Gold is still from the lower left to the upper right. I think that you want to own Gold in dollar terms; I think you want to own Gold in euro terms; I think you need to own Gold in yen terms. And quite honestly at this point, given the economic circumstances, I think you’d like to be long of gold and short the stock market.”  There was a lot of cautious optimism bubbling ahead of Federal Reserve Chairman Ben Bernanke’s testimony before Congress this week.   Global strategist Dan Greenhaus said, “There’s just been, for the last 48, 72 hours, a growing feeling that a 10 percent decline in the stock market is as deep a decline as you would get with Ben Bernanke lurking tomorrow.” He also added, “The fate of the market in the next couple of days is in Ben Bernanke’s hands, and it’s over his interpretation of the state of the economy.”  That interpretation wasn’t as clear as some would hope, as Chairman Bernanke refused to tip his hat regarding any new stimulus package.  Bernanke indicated that while the central bank is willing to protect the economy from “worsening,” he did not specify what actions (if any) the Fed would take. “The Gold bulls are desperately hoping for further mention of some form of stimulus from the Fed,” said David Govett of Marex Spectron. “If some form of this is put on the table, then I expect Gold will react very positively. If however, as I personally believe, the Fed leaves things as they are for the time being, this will be viewed as negative and Gold will fall.”

Spanish Debt Downgrade:

MADRID, SPAIN - MARCH 30:  Spain's Minister of...

MADRID, SPAIN – MARCH 30: Spain’s Minister of Treasury and Civil Services Cristobal Montoro Romero unviels Spain’s budget for 2012, during a press conference at the Moncloa Palace on March 30, 2012 in Madrid, Spain. The budget for 2012, which comes in the wake of a 24-hour general strike, includes over 27 bn euros in savings. (Image credit: Getty Images via @daylife)

At the G-7 conference this week, Spain’s Treasury Minister Cristobal Montoro sounded the alarm about how bad the banking situation is in Spain at this time. As the debt gets worse the access to credit to help bail themselves out is becoming more and more detrimental. He even called for European assistance, a departure from what other government officials had wanted, which was to raise the funds itself.  In an interview Montoro said, “The risk premium says Spain doesn’t have the market door open. The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt.” That problem grew later in the week when ratings agency Fitch downgraded Spanish debt from A to BBB on concerns that the country will need a bailout package to avoid economic disaster. Furthermore, Fitch’s outlook is negative, which means that more downgrades are likely.  German Chancellor Angela Merkel reacted by reiterating Germany’s commitment to helping its weaker eurozone partners. “It is important to stress again that we have created the instruments for support in the eurozone and that Germany is ready to use these instruments whenever it may prove necessary,” she said.

Germany Holding the Reigns:

Germany appears to be willing to trade a greater role supporting its indebted EU partners for more centralized control over government spending in member nations. While

Deutsch: Dr. Angela Merkel Bundeskanzlerin der...

Deutsch: Dr. Angela Merkel Bundeskanzlerin der Bundesrepublik Deutschland Vorsitzende der CDU Deutschlands (Photo credit: Wikipedia)

continuing to stay away from the idea of “eurobonds,” there is growing interest in pooling the bad debt with a payoff timetable of 25 years. “The world wants to know how we expect the political union to complement the currency union,” German Chancellor Angela Merkel said. “We have to find an answer in the foreseeable future.” In comments later this week Chancellor Angela Merkel said that Germany will use all the tools it has available to support the 17-nation eurozone. “In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary, and that this is an expression of our firm desire to keep the euro area stable.”  Merkel, however, has not backed off her rejection of debt sharing or access to euro bailout funds for Spanish banks.

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Gold price dips as Fed Chairman testifies

The Gold price has taken a tumble in midday trading as Federal Reserve Chairman Ben Bernanke refused to tip his hat regarding any new stimulus package. Bernanke indicated that while the central bank is willing to protect the economy from “worsening,” he did not specify what actions (if any) the Fed would take. “The Gold bulls are desperately hoping for further mention of some form of stimulus from the Fed,” said David Govett of Marex Spectron. “If some form of this is put on the table, then I expect Gold will react very positively. If however, as I personally believe, the Fed leaves things as they are for the time being, this will be viewed as negative and Gold will fall.”

Bernanke’s testimony to the Joint Economic Committee highlighted many of his concerns without much substance on how the central bank might act. Bernanke also warned lawmakers that “a severe tightening of fiscal policy at the beginning of next year that is built into current law — the so-called fiscal cliff — would, if allowed to occur, pose a significant threat to the recovery.” Next up will be the Federal Open Market Committee meeting June 19-20, which is expected to deal with slowing employment growth.

German Chancellor Angela Merkel has said that Germany will use all the tools it has available to support the 17-nation eurozone. “In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the eurozone, that Germany is ready to work with these instruments whenever that is necessary, and that this is an expression of our firm desire to keep the euro area stable,” the chancellor said.  Merkel, however, has not backed off her rejection of debt sharing or access to euro bailout funds for Spanish banks.

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,591.60, Down $40.10.
  • Silver, $28.73, Down $0.85.
  • Platinum, $1,444.20, Down $27.00.
  • Palladium, $625.00, Down $7.80.
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