In his testimony to the Senate Banking Committee yesterday Ben Bernanke

In his testimony to the Senate Banking Committee Ben Bernanke portrayed a more bearish outlook for the US economic growth.  He explained to lawmakers the reasons for the Fed lowering their projections in June and left the door open for further forms of quantitative easing. Today Bernanke held a Q&A session with the members of congress. Some of the topics discussed were the LIBOR manipulation, the concerns of the “fiscal cliff” and its effect on the US recovery, and congresses proposed audit of the Fed.  The usual suspects Barney Frank and Ron Paul were on the podium and voiced their concerns in their standard demeaning tone.  Of course Frank accused the Fed of doing nothing to help the economic situation and Paul went as far as saying that the congress should have ultimate control of monetary policy.  If you can get past all of the finger pointing and erroneous suggestions there have were three points that are important for the future of the economic recovery in the US. 

 

Bernanke showed concern that on Jan 1, 2013 we will plunge off a “fiscal cliff”.  If congress continues to kick the can down the road and fails to address this issue, we will see an aggressive cut in spending and a rise in taxes.  This will surely hinder the economic recovery in the US.  The key to resolving this issue and its inherent effects on our recovery is to come up with a solution that is long dated.  Bernanke’s suggestion was that we look beyond finding a solution for the next decade and attempt to put a policy in place that looks out several decades.  He stated that it is important that the public understand that under current law we will continue to accumulate massive amounts of debt and incur interest on that debt, hence our current fiscal situation is far from sustainable. 

Another important point Bernanke addressed was that inflation is not an issue and will not be an issue in the near term.  He reiterated that he is confident Federal Reserve has the power to fight inflation should it become a concern.  The third and possibly the most important point was the potential effect of a bill that would allow the congress to review monetary policy decisions.  Should this bill pass as drafted it will certainly compromise the central bank’s independence.  This is concerning because a central bank influenced by political forces will be less efficient and more likely to act on emotions rather than data. 

 

There are several things from the testimony yesterday and Q&A today that will help to influence the precious metals markets.  On one hand Fed Chairman Bernanke painted a picture of a compromised recovery in the US and significant fiscal concerns in the Euro zone and Asia.  He also addressed his concerns about the sustainability of the US fiscal situation.  All of these variables should help provide a bullish platform for gold.  On the other hand his confidence in the lack of inflation in the near term and the Feds ability to control it, paints a bearish picture for gold.  If there is no inflation and one believes that it will not be an issue in the next 10 years there is no real reason to own gold.  These two perspectives are causing the gold market to trade sideways.  One thing to keep in mind is that if we do see another round of QE the fears for inflation should rush back into the market. Should this happen we will definitely see an rush back into the precious metals.  Only time will tell.

 

Metals	Last	%Change	Low	High
Au-Aug	1575.2	-0.90%	1567.2	1585.7
Pt-Oct	1408.6	-0.80%	1403.0	1421.5
Pd-Sep	576.55	-1.20%	575.00	584.05
Ag-Sep	27.145	-0.68%	26.850	27.345
London	AM	PM	Minor	PGMs
Au	1579.5	1575.25	Rh	1250
Pt	1417	1405	Ru	115
Pd	582	576	Ir	1100
Ag	27.03	DJI	12880.77	75.23
Currencies
	USD	EUR	JPY	GBP
USD	0	1.2259	0.012693	1.5637
EUR	0.8158	0	1.03548	1.2756
JPY	78.78	96.57	0	123.191
GBP	0.6395	0.78395	0.8117	0
Crude Brent	105.17	Comex Copper	346.95
Crude WTI	89.85	Nat Gas	2.971
*THESE PRICES ARE FOR INDICATION ONLY CALL FOR QUOTES