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Gold Gains as Fed Chair Cautions on Job Recovery

Release Date: 
Monday, March 26, 2012

Gold moved higher after comments from Fed Chairman Ben Bernanke indicated that the U.S. labor market recovery may not sustain its momentum. The precious metal was priced at $1682.40 per ounce at 6:34 a.m. Pacific Time on the New York Spot Market with silver at $32.83 per ounce.

In a speech to the National Association for Business Economics, Bernanke said "we cannot yet be sure that the recent pace of improvement in the labor market will be sustained. A significant portion of the improvement in the labor market has reflected a decline in layoffs rather than an increase in hiring." While the labor market may lead to a self-sustaining recovery, "we have not seen that in a persuasive way yet," Bernanke said.

"There's a good chance we'll see a relapse in U.S. data since the economy is in a fragile recovery, which will lead to speculation on more quantitative easing, and that is positive for gold," said Hou Xinqiang, an analyst at Jinrui Futures in China.

Simon Weeks, head of precious metals at Scotia Mocatta, commented "I think (gold rose) on the back of Bernanke's comments, which people have taken to mean that further funding might be required." He added, "I think people have taken that to mean that gold is still going to be in demand."

Bill Gross of Pacific Investment Management Co. said that the central bank may "hint" at another round of bond buying next month. Thomas Simons, money market economist at Jefferies, said he expects the Fed to start a new asset purchase program in June.

"The rally is not over," said Standard Bank analyst Walter de Wet. "In real terms interest rates remain negative, and we expect them to remain negative for at least another two years."

Nick Holland, chief executive of miner Gold Fields, spoke about gold demand in India and China at the Reuters mining summit. "Those two countries together make up about 42 percent of total demand, compared to 23 percent of total demand five or six years ago," he said.

"Those are two economies that are likely to grow at a significant pace, certainly relative to the West," he added. "They have a strong affinity for gold, and they also have an increasing number of the population who are being urbanized. Of the extra income they get, some will find its way into gold." He added, "I believe that is a fairly good underpin for the gold price."

(Source: "Gold futures jump after Bernanke speaks," MarketWatch, March 26, 2012; "Berrnanke: Not clear if good jobs trends will last," MarketWatch, March 26, 2012; "PRECIOUS-Gold climbs 1 pct after Fed hints at more easing," Reuters, March 26, 2012;"PRECIOUS-Gold pauses after rally; dollar, oil eyed,"Reuters, March 26, 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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