Gold currently stands at $1691 – up $36 on the day and over $45 from the low it created immediately after Bernanke’s speech. The initial reaction to his comments were negative – many were expecting a full-on announcement that a round of stimulus initiatives were imminent, much like he did back in 2010 at this summit, and so the gold price fell away at first.
It was no massive surprise that he stopped short of making any firm commitments. Whilst many of the economic indicators are similar between 2010 and 2012, this year is an election year – and the economy is the big issue.
Over the next couple of months the US economy will be in the spotlight and so to announce new measures right now would only intensify the heat. It is much more likely that the Fed will keep their options open until after the election and then implement a new range of measures if the sluggish growth and high unemployment continues. Only if things get noticeably worse will they act before then.
That said, there was enough in his speech to give a clear indication that the Fed are ready to act and that they believe the economy needs the shot in the arm. Statements such as persistently high US unemployment being a “grave concern”, that economic recovery is “far from satisfactory” and that the Fed “should not rule out” new policies tell us that they are ready and willing – but history tells us that the Fed doesn’t like to intervene in the run up to an election and risk becoming a political football.
Our daily video, released to our subscribers prior to Bernanke’s speech, predicted this was most likely.
We’ve been saying for the past few weeks that we believe this to be the return to the bull market – higher highs and higher lows since the end of June told us that the market had turned, but it was range-bound and trudging its way through the extra-low trading volumes of the summer doldrums. The reaction to today’s news firms up this belief – obviously there are always going to be pull backs along the way, but we now see this as a bull market and are trading accordingly.