Commodities: The week that was; Ben Bernanke steals the show
WASHINGTON (July 20) US Federal Reserve Chairman Ben Bernanke stole the show last week. He was indeed a show-stopper as far as the markets were concerned as he testified before the US Congressional House and Senate. Markets awaited and sat on the sidelines with bated breath as the testimony and Q&A sessions progressed.
His words marked the futures in gold and silver. Both these metals exhibited significant volatility over the course of last week tracking his testimony.
Ben Bernanke said two vital things.
Firstly, the tapering of QE measures would happen when the economy exhibits robust job creation and inflation getting close to 2% mark. This, he has been saying in US English, though in different styles all along the course of QE measures. But the tone of his voice and what his testimony said between the lines did move the markets.
"Bernanke appeared to scale back some of the more aggressive comments regarding curtailment of QE and focused on additional monetary stimulus for the remainder of this year," Jonathan Butler, an analyst at Mitsubishi, said to CNBC.
The report from Reuters noted that the Federal Reserve still expects scaling back of QE measures later in 2013; however has the option of changing plans should the economy changes track, the outlook gets shifted, the report noted.
"Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," he told the U.S. House of Representatives Financial Services Committee in remarks prepared beforehand on Wednesday.
“If the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions -- which have tightened recently -- were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer,” Bloomberg News said quoting Bernanke statement.
Secondly, Bernanke admitted that he did not understand gold prices.
“Nobody understands gold prices and I don’t really pretend to understand them either.” Bernanke has been excessively frank as he testified before the US Senate Banking Committee on Thursday.
“Gold is an unusual asset. It’s an asset that people hold as a sort of disaster insurance,” he continued to add.
“One reason gold prices are lower is people are less concerned about extreme outcomes, particularly negative outcomes, and therefore they feel less need for whatever protection gold affords,” he said.
Now, if Ben Bernanke who has been instrumental in taking gold to $1900 highs by announcing trillions of Dollars in printing, if Bernanke who sits above 13,452,810.551 fine troy ounces of gold, he being the US Federal reserve Chairman and the custodian of gold reserves held by the Fed, cannot understand gold prices, who else would?
One may argue that you do not have to be a mechanic to drive a vehicle; you just have to be a good driver. And Ben Bernanke looks like he is. Perhaps, Bernanke was trying to score a point. He may want to say that paper gold prices or futures prices reducing is a sign that gold demand and investor anxiety is depleting, which means economy is on the path to growth.