Bullion prices rose throughout Asian and early London trade on Wednesday morning, touching $1,398 per ounce for the third time this week and recovering 4.4% from Monday's one-month low.
Silver rose more steadily, and was capped below $22.80 as energy prices slipped and agricultural commodities held flat.
Tuesday's retreat in the gold price today pushed gold bar premiums in Hong Kong to new record highs says Reuters, hitting $6 per ounce over and above international benchmark prices.
"Singapore premiums rose to $5 per ounce," the newswire adds, with Asian demand continuing to outstrip local supplies of gold kilo bars – the preferred investment form in the Far East.
"Expect to see more choppy trading in gold heading into Bernanke’s speech," says one bullion broker in a note, pointing to the Federal Reserve chief's testimony to Senate today on U.S. monetary policy.
Asked yesterday on Bloomberg TV whether the Fed will start to cut its $85 billion program of monthly quantitative easing, New York Fed President William Dudley said "It really depends on how the economic outlook evolves...It's too soon to make that determination."
Even if the U.S. central bank does slow its purchases of government debt and mortgage bonds with newly created money, Dudley said the Fed would only be "adding less stimulus" rather than actually "tightening" monetary policy.
"[Bullion] market participants, reading between the lines of Bernanke’s testimony, might infer a signal about an early end to quantitative easing," warns Standard Bank in London. "That would keep gold under pressure."
"Given the level of negativity in the atmosphere," says London market-maker UBS, "a much stronger move is needed [in the gold price] to materially threaten the resolve of shorts" – meaning speculative traders who now hold a record number of bets that gold will fall on the U.S. futures market. "Many shorts still feel comfortable given the persistently weak sentiment. There may well have been a good chunk of shorts initiated or re-established near this week’s highs."
Dudley's colleague James Bullard, president of the St. Louis Fed, meantime warned Europe yesterday that it needs to start quantitative easing to avoid a long, Japan-style depression.
"You should worry about it, and then take policy action to avoid it," said Bullard. "One way to get stuck would be to be passive in this situation and not take some aggressive action to try to get inflation back."
"Europe can draw lessons from Japan on the dangers of half measures," agreed Bank of Canada governor Mark Carney yesterday in his final speech before moving to lead the U.K.'s Bank of England in July.
Japan's banking crisis began in 1989. More than two decades later, "to end its debilitating legacy," says Carney, "Japan has just embarked on a bold policy experiment" – doubling its balance sheet with the most aggressive 'quantitative easing' yet seen.
"Governments have [already] been engaging in...printing money," says Marshall Gittler, former head of forex at Deutsche Bank Private Wealth Management and now head of forex strategy at UK brokerage IronFX, writing for CNBC. "But until [bank] loans have been made, [new central bank] reserves are just potential money."
Challenging former UBS analyst and now precious metals strategist John Reade at Paulson & Co. — who wrote in the Financial Times last month that "the expectation of global paper currency debasement makes gold an attractive long-term investment" — Gittler says that
"While the gold bugs wait for hyperinflation, the global economy slides first into disinflation and then, who knows, perhaps deflation."
Gold trading in India — the world's No.1 consumer nation — meantime eased off Wednesday, according to local reports.
After last month's festival season and the imposition of new import controls by the central bank in a bid to cut India's trade deficit, gold prices edged lower today, even though "supplies are difficult to get and premiums are still high" for gold bars according to one major dealer.
About the Author
Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.
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