Gold charged to 22-week highs on indications from Fed chairman Bernanke that fresh accommodations were in the offing. Bernanke's Jackson Hole speech was widely expected to be less than revealing in advance of the September FOMC meeting, but the contents were broadly interpreted as saying further Fed measures were all-but assured.
Bernanke expressed particular concern about the unemployment rate, reiterating the Fed's "mandated objectives of maximum employment and price stability." With inflation seemingly in check, at least as measured by CPI, the implication was that the Fed would move in an effort to bring down the jobless rate. Bernanke went on to say that, "Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time." To fulfill their mandate, the Fed is obliged to try and do something to prevent that.
The chairman expressed some concern that a further ballooning of the Fed's balance sheet would result in a loss of "public confidence" in the central bank's ability to withdraw accommodations at the appropriate time, which sparked a brief intra-speech sell-off in gold. However, let's be honest here, the Fed probably hasn't seriously thought about exit strategies since the Obama administration declared "recovery summer" in 2010.
The yellow metal appears poised to confirm a monthly gain of more than 4.5% for August. Nearly 61.8% of the decline from 1790.64 (29-Feb high) to 1526.80 (16-May low) has now been retraced. A short-term break of this Fibonacci level at 1692.32 would offer further confirmation that the influence of the long-term secular bull market in gold are returning to the fore.
Bernanke expressed particular concern about the unemployment rate, reiterating the Fed's "mandated objectives of maximum employment and price stability." With inflation seemingly in check, at least as measured by CPI, the implication was that the Fed would move in an effort to bring down the jobless rate. Bernanke went on to say that, "Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time." To fulfill their mandate, the Fed is obliged to try and do something to prevent that.
The chairman expressed some concern that a further ballooning of the Fed's balance sheet would result in a loss of "public confidence" in the central bank's ability to withdraw accommodations at the appropriate time, which sparked a brief intra-speech sell-off in gold. However, let's be honest here, the Fed probably hasn't seriously thought about exit strategies since the Obama administration declared "recovery summer" in 2010.
The yellow metal appears poised to confirm a monthly gain of more than 4.5% for August. Nearly 61.8% of the decline from 1790.64 (29-Feb high) to 1526.80 (16-May low) has now been retraced. A short-term break of this Fibonacci level at 1692.32 would offer further confirmation that the influence of the long-term secular bull market in gold are returning to the fore.
Peter Grant is USAGOLD's resident economist and a well-known analyst globally in the forex and precious metals markets.
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