Bloomberg News

Gold Pares Gain as Bernanke Damps Speculation on More Stimulus

July 14, 2011

July 14 (Bloomberg) -- Gold futures pared gains after reaching a record $1,594.90 an ounce as Federal Reserve Chairman Ben S. Bernanke said the central bank is not prepared “at this point” to offer more stimulus for the U.S. economy.

Yesterday, gold surged after Bernanke told Congress that he is prepared to provide additional stimulus if the economy languishes. Today, the Fed chief said that an increase in inflation was a reason that the central bank won’t immediately buy back bonds to bolster growth.

“Gold took a bit of a slide on Bernanke’s attempt to clarify his statements” from yesterday on prospects for a third round of so-called quantitative easing, Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “It’s not an option that’s by any means off the table. If we don’t see improvement in the economy by the third quarter, then we’re still going to see QE3.”

Gold futures for August delivery rose $4.10, or 0.3 percent, to $1,589.60 at 12:46 p.m. on the Comex in New York. Earlier, the price climbed as much as 0.6 percent and dropped 0.4 percent.

The Fed is prepared to take additional action if the economy appears to be in danger of stalling, Bernanke said yesterday. A failure by Congress to raise the nation’s $14.3 trillion debt limit would lead to a “major crisis” and throw “shock waves” through the financial system, he said.

The U.S. was put on a credit-rating review for the first time since 1996 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal, Moody’s said.

President Barack Obama and congressional leaders have failed to reach a compromise on reducing deficits and raising the debt ceiling. The government will exceed its borrowing authority on Aug. 2.

‘Massive’ Haven Buying

“If you don’t have a miraculous solution to all the world’s problems out there, then gold has to go higher,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. “There’s massive safe- haven buying into gold.”

The metal may surge to $2,000 if the Fed starts a third round of U.S. debt purchases, Michael Pento, a senior economist at Euro Pacific Capital Inc., said yesterday in a telephone interview. “People will be forced into buying gold.”

Silver futures for September delivery rose 57.4 cents, or 1.5 percent, to $38.725 an ounce. On April 25, the metal reached $49.845, the highest since January 1980.

The price will climb to $62 this year, McGhee of Integrated Brokerage said. “Silver is still the cheap alternative compared with gold,” he said.

--Editors: Patrick McKiernan, Steve Stroth

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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