BERNANKE SPEAKS IN WYOMING: NO NEWS ON EASING
August 26, 2011
At his widely awaited speech in Jackson Hole, Wyoming, Fed Chairman Ben Bernanke said the central bank stands ready to use additional tools to help the U.S. economy in its recovery, but provided few details as to future stimulus measures such as quantitative easing.
Gold was supported early in the day by data released on Friday showing the U.S. economy grew more slowly in the second quarter than previously stated as business inventories and exports were less robust, although consumer spending was revised higher. Gold gave up its gains following the Fed Chair's speech due to the lack of specificity on future stimulus.
"Bernanke probably will hint that he is ready to use further stimulus if the economy deteriorates," Pu Yonghao, chief investment strategist at UBS Wealth Management, said ahead of the speech. "People are concerned the probability of recession has increased. Gold is a kind of insurance, to insure against the potential quantitative easing." As the U.S. government makes money available through stimulus such as quantitative easing, interest rates for the dollar hover at very low levels.
Ole Hansen, senior manager at Saxo Bank said that regardless of any news on quantitative easing, "it does not alter the near-term dire prospects for economic activity and worries about the health of the banking sector and government debt."
"There's every reason to see gold regaining the $1,900 level in the not-too-distant future and pushing through $2,000 before the end of the year," said David Wilson, a commodity strategist at Société Générale in London.
UBS AG's physical gold sales to India yesterday were more than twice the daily average and are set for the best week since May, Edel Tully, a London-based analyst at the bank, wrote in a report. "We expect a stronger buying response today," she wrote.
(Sources: "Gold's Wild Ride Shows Strains Among Investors' Ranks," Wall Street Journal, August 26, 2011; "Gold Rises, Reducing Weekly Decline, as Lower Prices Fuel Investor Demand," Bloomberg, August 26, 2011; "Gold Pulls Back Following Bernanke Speech,"CNBC, August 26, 2011)