Despite the exceptions of many for a more “pro-stimulus” testimony by the Chairman of Fed especially after the recent disappointing U.S non-farm payroll report came out on Friday, there weren’t any hints for QE3; Bernanke dropped a wet blanket on these speculations as he calmed the markets by stating the U.S economy isn’t in such a dire state as many think. This testimony had an immediate reaction in the bullion markets as both gold and silver prices tumbled down.
The recent U.S employment report sparked renewed speculations around another QE program; many thought the Chairman of the Fed will hint of another stimulus plan might come into play in the next FOMC meeting to be held on June 19th -20th.
In his testimony he did refer to the growing concerns the Fed has towards the debt crisis in Europe:
“…the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely”.
The risk revolving he European debt crisis is likely to keep occupying the news and the Fed might consider taking actions if it will be needed. I have referred to the potential ramifications of Greece exiting the EU and how this scenario may affect bullion rates.
He referred to the labor market, and thinks the situations is improving; the recent drop in jobs added in the past couple of months is due to warmer weather. But he also said this could also be due to:
“…some catch-up in hiring on the part of employers who had pared their workforces aggressively during and just after the recession…”
This means if the upcoming U.S employment reports will continue to show little growth it might suggest a slowdown in job growth.
Bernanke also stated the U.S economy is improving:
“Economic growth appears poised to continue at a moderate pace over coming quarters, supported in part by accommodative monetary policy. In particular, increases in household spending have been relatively well sustained.”
As always Bernanke kept the door open on another monetary movement by the Fed if needed, but he didn’t change his attitude on this front nor did he hint of a shift in Fed’s policy.
The next step will be the FOMC meeting on June 19-20. If the FOMC won’t make a change in its monetary policy, which seems very reasonable, gold and silver are likely to further decline or at best keep their current price range. I have referred in the past to the relation between a monetary expansion and gold.
As a result, the precious metals prices tumbled down during yesterday and may continued to do so during todays trading. Currently, gold and silver are declining:
Euros to US dollar exchange rate is currently traded up at 1.2458 a 0.81% decrease as of 10:05*.
Current gold price, short term futures (July 2012 delivery) is traded at $1,572.6 per t oz. a $15.4 decrease as of 10:05*.
For further reading: