Wednesday, February 29, 2012

Gold Plunges Over $100; Some Blame Bernanke; What Did He Say? Nothing (However, I have 5 Different Interpretations of Nothing)

It was a wild ride in gold today with a top to bottom over $100 as show in the following chart.



Some Blame Bernanke For "Committing to Nothing"

Bloomberg reports Gold Falls in ’Manic’ Plunge as Bernanke Damps Stimulus Bets
Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity.

“People were expecting that the Fed would loosen policies, even if the perception is that the economy is doing well,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “The investor sentiment changed as the Fed committed to nothing. This is the manic nature of the market.”
Bernanke Hints at More QE

In video commentary Fox News says Bernanke Hints at More Quantitative Easing

Hints at More QE? Really? How about this interpretation?

Door is Open, But Not For A While

The Wall Street Journal reports Comex Gold Tumbles On Bernanke Testimony.
"Bernanke's comments to Congress left the door open for more QE," said Steve Scacalossi, a director of precious metals with TD Securities, in a note. "But his statements that employment is recovering at a better than expected rate implies that if QE is coming, it won't be for a while."
QE Increasingly Improbable

The LA Times says Bernanke's testimony in Congress pushes down gold, silver prices
Federal Reserve Chairman Ben S. Bernanke's words carried a great deal of weight in the commodity markets — so much so that they squashed the prices of gold and silver.

Bernanke told Congress that the U.S. economy was probably headed for modest growth this year, adding that the current increase in oil and gas prices probably would reverse before sparking long-term inflation.

The presentation Wednesday signaled to many investors that the Fed's embarking on another round of quantitative easing was an increasingly improbable scenario.

"When Bernanke didn't mention the possibility of another round of monetization, that was enough to take the fizz out of everything," said independent commodities analyst Dennis Gartman. "Before today, gold was looking quite strong, but today it just gave up the ghost."
Overall Dovish Undertones With Markedly Less-Dovish Testimony

Yahoo! Finance reports Euro Tanks, U.S. Dollar Surges on Bernanke Testimony
Federal Reserve Chairman Ben Bernanke was on Capitol Hill today testifying in front of the Committee on Financial Services. Despite overall dovish undertones, the chairman’s testimony was markedly less-dovish than recent Federal Reserve communiqu├ęs, boosting the U.S. Dollar across the board.
Bernanke's Actual Testimony

Please consider Semiannual Monetary Policy Report to the Congress, Testimony by Ben Bernanke.

A quick sscan shows Bernanke did not mention the word "quantitative" once. The Only reference to "easing" was in relation to constraints on motor vehicle parts in Japan related to the earthquake.

Bernanke did say growth would be close to or somewhat above second half of last year but "fundamentals that support spending continue to be weak". More specifically the Fed forecasts "2.2 to 2.7 percent, considerably lower than the projections they made last June"

He also said "housing affordability has increased dramatically" but "potential buyers lack the down payment ... others are reluctant to buy a house now because of concerns about their income"

In regards to unemployment, Bernanke said "With output growth in 2012 projected to remain close to its longer-run trend, participants did not anticipate further substantial declines in the unemployment rate over the course of this year. Looking beyond this year, FOMC participants expect the unemployment rate to continue to edge down only slowly toward levels consistent with the Committee's statutory mandate."

That's "markedly less dovish"? Really?

What does that mean for QE?

Nothing. That's what.

People can and did read into Bernanke's testimony what they wanted to hear. Others judged the market reaction, and wrote a corresponding explanation to fit.

One thing's for certain, that was hardly an upbeat assessment of the economy especially in light of the statement that "global financial markets posed significant downside risks".

Here's the deal. If the economy tanks the Fed is likely to do another round of QE. The same holds true for another LTRO by the ECB.

By the way, a couple of the links above came via email from Pater Tenebrarum at the Acting Man Blog, who in turn got them from Lance Lewis. Thanks!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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