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Bernanke: Fed is Prepared to Take Action

Release Date: 
Thursday, June 7, 2012

Gold prices were lower on Thursday as Fed Chair Ben Bernanke testified before Congress and investors watched for hints of quantitative easing. Gold was $13.70 lower at 7:15 a.m. Pacific Time on the New York Spot market, trading at $1,607.00 per ounce. Spot silver was $0.49 lower at the same time, trading at $29.12 per ounce. (Click here for the most current spot prices.)

Bernanke did not indicate an immediate need for further monetary accommodation in his testimony, but said the central bank is "prepared to take action" to protect the U.S. financial system as needed "in the event that financial stresses escalate."

"The crisis in Europe has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions," Mr. Bernanke said. U.S. banks are stronger than they were several years ago, giving them some protection from the turmoil in Europe. "Nevertheless, the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely."

Bernanke expressed his belief that the U.S. economy will continue to grow at a "moderate" pace this year. However, he pointed to a weak housing market and the health of the European banking system as economic headwinds. Bernanke also warned the nation's recovery may now require faster economic growth to produce significant improvements in the job market.

Prior to Bernanke's testimony, gold saw support from a Chinese interest rate cut that pressured the dollar lower. China's central bank cut its benchmark rate by 25 basis points in a surprise move to promote growth. This was the bank's first rate reduction since the 2008-2009 financial crisis.

Kazakhstan's central bank said on Thursday it would increase the share of gold in its foreign reserves from 12 percent to 15 percent. The bank was also reducing its euro reserves.

(Source: "PRECIOUS-Gold rises after China rate cut, ahead of Fed," Reuters, June 7, 2012; "Bernanke: Fed Ready to Act if Europe Hits U.S.," Wall Street Journal, June 7, 2012; "Gold futures extend decline as Bernanke speaks," MarketWatch, June 7, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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