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Why Ben Bernanke's QE3 Comments are Bullish for Gold Prices

When Ben Bernanke speaks, the gold market listens – closely.

The Federal Reserve chairman's comments late Wednesday that the central bank would continue its QE3 economic stimulus for now drove gold prices higher, and they're likely to keep rising.

That's because investors need a hedge against quantitative easing, which looks like it'll be with us for the foreseeable future, and that's good news for gold prices.

Bernanke's comments, which came in a Q-and-A session after a speech Wednesday, provide the latest indication the Fed will continue QE. That, in turn, will push gold prices higher.

Easy-money policies by the European Central Bank and the Bank of Japan also will help prop up gold prices.

"While Bernanke and the UK/Japanese central bankers are pumping out money, the outlook for commodities and gold prices remains bullish," Money Morning Global Investing Specialist Martin Hutchinson said.

"My take is that the case for gold has, if anything, increased, and that we will see a massive rebound in the gold mining sector."

Carsten Fritsch and other analysts at Commerzbank said in a note to investors that the reaction of the precious-metals market is related to the fact that investors believe the Fed's actions "do not differ significantly" from policies of the ECB and BOJ.

"This is likely to prompt investors to increasingly seek a 'safe haven' and a currency that is independent of the central banks, thus again luring in buyers of gold," the note said.

Bernanke's Words Music to Gold Bugs' Ears

Such sentiment stands in sharp contrast to the reaction when Bernanke hinted at a press conference last month that the Fed could begin tapering QE by the end of this year and end bond-buying next year – comments that led to a selloff of gold and a rally in the dollar.

"One of the reasons gold saw such a dramatic sell-off … is the fear that the Fed was going to take the punch bowl away," Phil Flynn, a senior market analyst with Price Futures Group, told Kitco News.

On Wednesday, by contrast, gold bugs got the message they wanted to hear – Bernanke's saying "highly accommodative monetary policy for the foreseeable future is what is needed in the U.S. economy" – and that bodes well for gold prices.

Join the conversation. Click here to jump to comments…

  1. H. Craig Bradley | July 12, 2013


    Market crashes are by definition often caused by unforeseen or unrecognized factors which eventually overwhelm the entire stock market. Since today's global markets are highly interrelated and correlated, everything (including GOLD) tends to move in tandem during panics. The unnoticed just quietly creeps-in, unnoticed as termites, and begins eating-away at the market's fundamentals.

    Naturally, investor sentiment is at its peak exuberance while this process is going on. Often, peak exuberance is also accompanied by new all time highs in the stock market indexes, at least. Subsequent crashes are always a big surprise to the mass of investors.

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