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Bernanke Testimony Sends Gold Prices Higher

Release Date: 
Tuesday, February 26, 2013

Gold rose in early trading after Federal Reserve chairman Ben Bernanke testified that he continued to support the current quantitative easing policies.  The metal was $19.20 higher at 9:15 a.m. Pacific Time on the New York Spot Market, at $1,613.80 per ounce.  Spot silver was $0.33 higher at $29.42 per ounce.  (Click le here for the most current spot prices.)

Fed Chairman Bernanke delivered the central bank’s semiannual testimony to the Senate Banking Committee, testifying he backed continuation of the Fed’s $85 billion per month bond purchasing program.

"(Gold) seems to have rekindled its safe haven qualities," Saxo Bank vice president Ole Hansen said. "But whether it will last for long probably depends on Bernanke this afternoon."  The analyst expected Mr. Bernanke’s statements to strike a soft fiscal tone.  "On average, I would think his statement will be gold supportive as an offset from the recent (Fed) meetings," Mr. Hanson said. "I'm looking for 1,605, followed by 1,620-25, as major levels of resistance."

Mr. Bernanke’s testimony indicated to traders that a course change from the Fed wasn't imminent, said Kurt Pfafflin, a senior broker with Daniels Trading in Chicago. "We've got an over sold [gold] market, and this is a relief rally."

Italy faced political turmoil after the anti-establishment 5-Star Movement of comedian Beppe Grillo become the strongest party in the country in the country’s elections Tuesday.  No group gas a clear majority in parliament, which further fueled uncertainty.  IG market strategist Stan Shamu said a political impasse in Italy could be negative for financial markets and may lead to a rise in gold.

"(The) Italian elections have been the first of the 2013 scheduled event risks to blow a hole in risk appetite. That the anti-establishment 5 Star movement was the party to win the single largest share of the vote proves a sharp reminder to Brussels that fiscal austerity can potentially be undone with a popular vote," Dutch bank ING said in a note.

Strategists at Capital Economics gave Europe’s debt situation as one reason to expect gold buying to increase. They said they expected the metal to reach a record $2,000 per ounce this year, also aided by supportive global monetary policy and a fading equity rally. “An extended pause is not a sufficient basis for arguing that the bull market is over,” they said.

(Sources:  “Comex Gold Extends Rise as Bernanke Underlines Support for QE,” Wall Street Journal, February 26, 2013; “Gold Moving Sideways in Asia; Precious Metals Mixed,” Wall Street Journal, February 26, 2013; Gold futures rally past $1,600 an ounce,” Marketwatch, February 26, 2013; PRECIOUS-Gold steadies near $1,590 ahead of Fed testimony,” Reuters, February 26, 2013)

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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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