Bernanke causes high volatility in precious metal prices

Bernanke comments and weak Chinese data weigh on prices

via Commerzbank

During his testimony before the US Congress yesterday, Fed Chairman Ben Bernanke caused precious metal prices to fluctuate considerably. The gold price initially climbed by $30 to $1,415 per troy ounce after Bernanke explained that any premature tightening of US monetary policy would jeopardize the economic recovery and that monetary policy would remain accommodating for as long as necessary. In the subsequent Q&A session, however, Bernanke gave more concrete details as regards the exit of “QE3”: in its next meetings the Fed might well reduce the pace of its bond purchases were the US labour market to continue its recovery and assuming this recovery appeared lasting.

 In response, the gold price shed all its gains again and dropped back to $1,355 per troy ounce. From the minutes of the Fed’s last meeting that were published in the evening, it was evident that some FOMC members are already willing to consider reducing the bond purchases at their next meeting in June. That said, our economists doubt that we will already see any decision to scale back “QE3” in the next few months. While the outflows from the gold ETFs continued yesterday – at 463 tons since the start of the year, the reduction in holdings now exceeds the total increase in holdings in the last two years put together – platinum ETFs have been seeing noticeable inflows over the past few weeks. As of yesterday, their holdings reached a record high of 1.98 million ounces. The more than 18% increase since the beginning of the month is attributable primarily to the launch of the first physically-backed platinum ETF in South Africa at the end of April, which met with great interest among investors.