Gold, silver slump on Bernanke's comments

Prices slip after the Federal Reserve chairman hints of no further stimulus.

By TheStreet Staff Jun 8, 2011 10:25AM

Gold © Comstock Images/Jupiterimagesthe streetBy Alix Steel, TheStreet

 

Updated at 3:43 p.m. ET

 

Gold and silver prices fell Wednesday as investors digested Federal Reserve Chairman Ben Bernanke's commitment to low interest rates without additional stimulus.

 

Gold (-GC) for August delivery settled down $5.30 at $1,538.70 at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,547.40 and as low as $1,531.80, while the spot gold price was shedding $8.50, according to Kitco's gold index.

 

Silver (-SI) prices slipped 43 cents to finish at $36.63 an ounce. The U.S. dollar index was adding 0.5% at $73.93.

 

Bernanke appeared to take off the table the prospect of more stimulus, or a third round of quantitative easing, when he spoke Tuesday at the International Monetary Conference in Atlanta. Bernanke acknowledged that slower economic growth is painful but said the recovery could pick up steam in the second half of the year.

Bernanke gave no hints of tightening but said that "accommodative monetary policies are still needed. . . . Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established."

 

Bernanke's speech was a mixed bag for gold prices. On one hand, the promise of low rates for an extended period means inflation should continue to outpace interest rates. On the other, a lack of additional stimulus helps the U.S. dollar, curbing inflation worries and demand for gold as a haven asset.

 

Mark O'Byrne, the executive director of Goldcore, a bullion dealer, sees more consolidation for gold and silver prices but believes "some form of QE3 looks likely, but at the same time Ben Bernanke has to be very careful of how he manages perceptions."

 

Tony Battista, the managing director of TastyTrade, argues that gold really isn't the haven play investors are used to. "If I had to pick one of the two, although gold is higher, . . . I would rather be short gold and long silver," Battista says. "Silver has been beaten up so much more than gold." Battista thinks gold could rise as high as $1,600 but risks falling as low as $1,400, which he sees as fair value.

Mihir Dange, a trader at Arbitrage, is shorting gold from this level until $1,577, gold's intraday record. But said he would start buying again "if we get above $1,577."

 

Gold mining stocks were trading lower Wednesday. Barrick Gold (ABX) was sinking 2.8% to $44.08, while Newmont Mining (NEM) was losing 1.6% at $52.11. Goldcorp (GG) was down 2.3% at $46.90, and AngloGold Ashanti (AU) was falling 2.1% to $42.94.

 

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