Gold surges after dovish Bernanke comments

The ‘Bernanke put’ has always been good for equities.

The weak US dollar overnight and today as a result of what was essentially just a more dovish tone from Federal Reserve chairman Ben Bernanke, has shown in some respects that the Federal Open Market Committee operates at the behest of the markets and knows it.

The European Central Bank and Bank of England came to this conclusion last week, proving the theory with the unprecedented forward-guidance announcements.

Today’s US jobless claims showed that Ben Bernanke is right to be concerned about unemployment, after claims rose to 360,000 last week and served to allay tapering fears.

Inflation threat

Clearly the threat of inflation is not of immediate concern, with the International Monetary Fund’s Oliver Blanchard stipulating that those who fear a short-term jump in prices are basically erroneous, while at the same time we’ve heard the likes of Harvard economist Martin Feldstein and former Fed chairman Paul Volcker voice concerns about imminent inflationary pressures. Short-term inflation may not be a problem but the jump in oil prices recently would imply that for somewhere like the UK, imported inflation is very real.

QE tapering fears ease

The cooling of tapering talk has had a significant effect on the base and precious metal suite, sending the sector on an upswing as Mr Bernanke sought to put the markets straight.

Yesterday’s relative divergence in price between oil and gold hit its lowest level in four years. Certainly the political upheavals in Egypt are having a perceived impact on oil supplies, but given the fundamental concerns over global growth, one would expect that demand for the fuel would also serve to push lower or help to neutralise supply concerns.

It may also show that gold has hit a pivotal bottom and had essentially been driven down too far, too fast. Gold, a traditional inflation hedge, powered up by $50/oz in the aftermath of Mr Bernanke’s remarks and has since found the air a little thin around the $1300/oz level today. A break through the $1300 level would probably provide a new base, with the $1320-30 levels a barrier to further upside.

Barrels of oil an ounce of gold buys

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.