The consequences of current global monetary policy will be higher prices for both gold and silver says David Levenstein
Posted: Wednesday , 05 Sep 2012
JOHANNESBURG -
Finally, we have a break to the upside in both gold and silver, something that many precious metals investors have been patiently waiting for, but expected to happen. The price of gold is now a tad away from breaching the $1700 an ounce level, after smashing through the key resistance levels at $1625 an ounce and $1650 an ounce.
As US Federal Reserve Chairman, Ben Bernanke, began
his eagerly awaited speech at the annual symposium at Jackson Hole,
Wyoming, the price of gold dropped sharply.After trading above $1660 an ounce last Friday, the price of spot gold suddenly dropped to an intra-day low of $1644 an ounce. Afterwards, the price suddenly reversed direction and surged higher to end the day, the week and the month at $1692.30 per ounce, the highest level since May of this year. The price of gold is now well above its 50 day Moving Average and is building strong support above its 200 day Moving Average currently set at just under $1650 an ounce.
As the price of gold rallied, the yield on the US 10 year bond dropped to 1.562%, down from 1.678% compared with the previous weeks close and August's high of 1.863%. The yield on the 30 year bond also tumbled to close at 2.684%, also at the week's low. The euro increased against the greenback for a third week, the longest stretch since March. Last week, the dollar fell 0.5% versus the euro to $1.2579 after losing 1.4% in the five days ended Aug. 24. The yen was little changed at 98.46 per euro. And, the Dollar Index, which tracks the greenback against the currencies of six major U.S. trade partners including the euro and the yen, fell 0.5% to 81.204. Since the beginning of August the dollar has declined by around 3% in value while the price of gold posted a 4.5% gain in August, its third straight monthly rise and its biggest since January.
The symposium which has been sponsored by the Federal Reserve Bank of Kansas City since 1978 focuses on important economic issues that face the U.S. and world economies.
Participants include prominent central bankers and finance ministers, as well as academic luminaries and leading financial market players from around the world.
The Symposium proceedings are closely followed by market participants, as unexpected remarks emanating from any of the major speakers at the Symposium can impact on global equities and commodities, as well as the financial and currency markets.
In his speech, Bernanke was adamant that his current monetary policies have proven to be successful. "The accommodative monetary policies I have reviewed today, both traditional and non-traditional, have provided important support to the economic recovery while helping to maintain price stability. As of July, the unemployment rate had fallen to 8.3% from its cyclical peak of 10% and payrolls had risen by 4 million jobs from their low point."
Frankly, I am not sure what Bernanke meant when he spoke about price stability. While prices are affected by natural as well as man-made forces such as droughts, floods, war and political turmoil, expansionary monetary policies and market intervention, causes additional price and market dislocations.
In a statement released by the World Bank, global food prices jumped 10% in July. From June to July, corn and wheat prices increased by 25% each, soybean prices by 17%, and only rice prices went down, by 4%, the World Bank said on Thursday.
The World Bank's Food Price Index, which tracks the price of internationally traded food commodities, was 6% higher compared to July of last year, and 1% over the previous peak of February 2011.
U.S. soybean futures hit a record high of $17.78 per bushel in trading last Thursday, while corn futures remained near the record of $8.49 set earlier in August.
Read more>>Break to the upside in gold and silver suggests an exciting September ahead
