Markets respond to Bernanke comments by causing gold to surge

TradingPub Admin | July 11, 2013

Responsive image

Global markets responded to the minutes from the most recent Federal Reserve policy meeting by pushing gold higher, causing the precious metal to enjoy its sharpest gain in one year. 

Surging gold prices
August gold surged to as high as $1,297.20 per ounce early in the day, before paring these gains to trade 3 percent higher at $1,284.70 an ounce on the Comex division of the New York Mercantile Exchange, according to Bloomberg. 

This happened amid robust trading volume for the contract, according to data provided by the media outlet, as transactions involving August gold were 46 percent higher at this point in the session that the 100-day average for this time. 

This futures contract was not the only measure of the metal's price that surged in value, as spot gold climbed as much as 2.7 percent to reach $1,298.36 per ounce, before lowering to $1,282.31 an ounce by 09:38 GMT, Reuters reports. 

Bernanke comments
These sharp increases in the price of gold happened the day after Federal Reserve Chairman Ben Bernanke stated that the current economic conditions warrant "highly accommodative monetary policy for the foreseeable future," according to Bloomberg. 

This statement represented a sharp contrast to what the Fed chief said at the conclusion of the June meeting of the Federal Open Market Committee, at which point he announced the possibility that the pace of quantitative easing could be lowered starting as early as this year. 

A less certain opinion was articulated by the FOMC minutes that were released on July 10, which indicated that a substantial number of the members of this committee believe that any changes to the current regimen of asset purchases will require the job market to strengthen, the media outlet reports. 

Tapering far off
"Gold got a boost after Bernanke gave the impression that tapering is currently a distant dream," Carlos Perez-Santalla, a New York-based broker at Marex North America LLC, told the news source during a telephone interview. "Today's data further cements the fact that the economy has not completely recovered." 

Macquarie analyst Matthew Turner indicated that he is more certain about the future reductions in asset purchases, according to Reuters. 

"Of the Bernanke Twins, we got the dovish one last night, and this helped a gold market that was already rallying," Turner told the news source. "But whether tapering is September or December, gold has to get used to life without QE (quantitative easing) sooner or later." 

Potential recovery in gold
It is important to note that while the precious metal surged after Bernanke made comments about the future of Fed asset purchases, this appreciation happened after gold plunged 23 percent in value during the April-June quarter. In addition, the precious metal fell into a bear market in April, having declined 20 percent from the record highs it reached in 2011. 

While the drops in value that have happened over the last several months have been substantial, the recent rally has given some gold bulls greater hope for future price increases. 

"Sentiment will now be to the upside and the market will be looking for an attempt on $1,300," David Govett, head of precious metals at London-based Marex Spectron Group, wrote today in a report, according to Bloomberg. 

MKS Capital senior trader Alex Thorndike provided similar optimistic comments, Reuters reports. 

"I suspect a test of $1,300 will be on the cards, considering order books are very light up to that point," he told the news source. "I am looking to fade a rally into $1,300-$1,310, with a stop in at $1,315 and a take profit at $1,285." 

If you want additional free trading education, you can find it at TradingPub, home to some of the top investors and traders in the industry.