When Ben Bernanke speaks, the gold market listens - closely.
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.
"The statement the market seemed to latch onto was the talk that the Fed is going to stay very accommodative even if they hit some of the employment targets they have been looking for," Flynn said.
Gold Prices Climb Thursday
By mid-morning Thursday, gold prices had climbed to nearly a three-week high while the dollar declined, giving further impetus to gold prices.
Just after 10 a.m. EDT, August gold prices stood at $1,283.60 an ounce on the Comex division of the New York Mercantile Exchange, up $36.20, or 2.9%.
Other precious metals also rose. September silver hit $20.045, up 88 cents, or 4.6%, while Nymex October platinum was at $1,406.40, up $38.30, or 2.9%.
But amid the optimism and rising precious metal prices, there are signs the Fed could begin scaling back its $85 billion-a-month bond buying this year.
Bernanke's comments, after all, came just hours after the release of minutes of the June Federal Open Market Committee, which showed considerable dissension among participants.
About half of the19 Fed members "indicated that it likely would be appropriate to end asset purchases later this year," the minutes said.
But at the same time, a majority of the 12 voting members of the policy-making FOMC hope to extend the bond-buying into next year.
Joel Naroff, president and chief economist of Naroff Economic Advisors Inc., said it's unlikely QE will end anytime soon, given inflation and unemployment rates aren't close to Fed targets.
"If the Fed is to start withdrawing its support of the bond market, it really needs to have good reason to do so and right now, there is no reason to do so," Naroff said in a note to clients Thursday.
"Inflation is below target and the unemployment rate is well above it with no reason to think either situation will change soon."
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