Gold Price Slips after Bernanke Offers No QE3 Signals

GOLD PRICE NEWS – The gold price turned sharply lower Thursday morning after Federal Reserve Chairman Ben Bernanke did not hint at further monetary stimulus in prepared remarks to the United States Congress.  In overnight trading, the spot price of gold held firm near $1,630 per ounce after China’s central bank unexpectedly lowered its benchmark interest rate by 25 basis points in an attempt to support its slowing economy.  However, after the release of Bernanke’s testimony, the gold price fell $14.31, or 0.9%, to $1,605.49 per ounce.

Silver followed a similar path to that of the gold price on Thursday.  Gold’s sister precious metal climbed to $29.65 per ounce subsequent to China’s rate announcement, but later slid to $28.88 following Bernanke’s comments.  Despite today’s sell-off in precious metals, however, the price of gold and silver remain higher this month by 2.7% and 4.2%, respectively.

Gold shares, which have rebounded significantly in recent weeks, opened near unchanged but quickly headed south alongside the price of gold.  The Market Vectors Gold Miners ETF (GDX) – which yesterday rose to a nine-week high of $48.72 per share – fell $1.34, or 2.8%, to $46.28 this morning.  Notable decliners in the sector included GDX components Eldorado Gold (EGO), IAMGOLD (IAG), and Newmont Mining (NEM).  EGO dropped by 2.2% to $12.17, IAG by 3.1% to $12.09, and NEM by 2.7% to $50.29 per share.

As for the broader markets, they built on yesterday’s large rally by moving further north in morning trading.  The S&P 500 Index –which on Wednesday had its best day since December 20th of last year with a 2.3% advance – rose an additional 0.7% to 1,323.87 this morning.  The benchmark U.S. Index earlier climbed to as high as 1,329.05, but pared its gains following the release of Bernanke’s prepared testimony.

In his first public comments since the post-FOMC press conference on April 25, Ben Bernanke discussed the escalating headwinds facing the U.S. economy before the Joint Economic Committee of Congress.  Although economic growth “has continued at a moderate rate so far this year,” the Fed Chairman noted that “some of the factors that have restrained the recovery persist.”

“Notably, households and businesses still appear quite cautious about the economy,” Bernanke continued. “For example, according to surveys, households continue to rate their income prospects as relatively poor and do not expect economic conditions to improve significantly. Similarly, concerns about developments in Europe, U.S. fiscal policy, and the strength and sustainability of the recovery have left some firms hesitant to expand capacity.”

As for monetary policy, “Helicopter Ben” primarily discussed the current set of measures in place.  The one comment with a slightly more dovish tone occurred when he stated that “the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely.  As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”

Given the lack of signals that the Fed is considering further monetary easing – such as via a third round of quantitative easing (QE3) – the price of gold gave back a considerable portion of its recent gains.  Looking ahead, analysts at ScotiaMocatta wrote in a note to clients that “Gold closed slightly higher (on Wednesday) but failed to hold its highs of the day or to clear resistance from the downtrend at $1,632…We remain bullish so long as gold stays above $1,600, but will need to clear resistance to bring in more buyers.”