Gold bugs should remain patient

For months, it was as if the gold price only had eyes for the US Federal Reserve chairman Ben Bernanke. This perception was reinforced as the markets reacted to his speech at Jackson Hole last week, sending the yellow metal to five-month highs.

In his speech, Bernanke stopped short of announcing another round of easing. But his defence of the Fed’s monetary policies had gold bugs wetting their lips in anticipation – undermining the dollar and driving investment into gold.

Benanke’s speech focused on his almost unwavering belief in monetary activism (bad news for the dollar, great for gold). His speech contained a glowing self-assessment of the Fed’s work that no Bernanke speech can possibly be without. But it was less bullish about the health of the US economy, particularly the labour market. Bernanke said: “The stagnation of the labor market is a grave concern,” which was taken as an indication of his intention to ramp-up interventionary measures.

Gold is traditionally seen as a safe-haven asset. Despite this, the tumultuous financial situation in Europe has done little to drive the gold price out of its sideways channel. And its been seemingly interested in only two words: quantitative easing (QE).

According to the US Commodity Futures Trading Commission, last week saw net long positions in US gold futures and options raised to their highest level in more than five months.

Bernanke’s address did not contain any explicit announcements that a third round of QE was coming, nor did it go into specifics about the form that any future “non-traditional monetary policy” would take. However, the gold price has finally been given momentum and a move towards $1,770 levels looks possible, with initial resistance around $1,720. There is a risk that corrections could come as the metal looks a little overbought. But all is dependent on alluded-to interventions materialising. It looks like gold is going to have an event filled two weeks in the run up to the Fed’s September meeting when the gold resurgence could be boosted or dashed.