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Gold Choppy Ahead of Bernanke Testimony

by Peter A. Grant

May 21, AM
(from USAGOLD.com) --

Gold is under renewed pressure on the heels of yesterday's impressive intraday rebound. Once again, speculation that the Fed is going to start paring back accommodations is being bandied about.

Fed chairman Bernanke testifies before the JEC tomorrow and as always, there is hope that he will clarify the central banks intentions. Don't hold your breath...

I would expect Bernanke to regurgitate the boiler-plate that Fed policy is conditional. There have been enough indications of a slowing economy, and given the continued concerns about a fiscal drag courtesy of the sequester, there is little incentive for Bernanke to signal tighter policy at this point. Add to that the absence if inflation (at least in the traditional sense), and the chairman likely thinks time is on his side at this point.

I would also suggest that given the likelihood that Bernanke will step down next year, he's very unlikely to risk his legacy by removing accommodations "prematurely." As a scholar of the Great Depression and the Japanese lost decade, he believes that the central banks either didn't do enough, or pulled back accommodations too soon. With the doves firmly in charge of the FOMC, and his legacy on the line, it strikes me as very unlikely that he would succumb to the temptation of tighter policy.

Interestingly, St. Louis Fed hawk Bullard took a noticeably more dovish tone at a conference in Frankfurt today, saying that QE is the best tool available at zero bound interest rates. The Fed could take rates negative, although he doesn't see much support for that, but "open-ended" QE "has a future," he said.

Bullard's comments pushed gold higher intraday, but uncertainty about monetary policy moving forward prevails. That may keep the PMs choppy in the near term. Continued strength in equitites continues to sap interest in gold as well.

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Gold Choppy Ahead of Bernanke Testimony