The gold market only has eyes for Bernanke

GOLD traders have been accustomed to being swept off their feet with big, bold moves from the yellow metal. But they have been left bemoaning the lack of thrills of late, as gold continues to struggle to break to the upside. Yesterday, the gold price held above $1,570 – but this is a long way from its 2011 record of $1,920.

The precious metal did manage to post a gain yesterday – recouping some of the 3.5 per cent losses posted last week, when gold bulls were disappointed by the Fed holding its fire on a third round of quantitative easing. The Fed instead opted for an extension of its Operation Twist programme – financing the purchase of longer-term bonds with the sale of another $270bn worth of short dated securities – trying to flatten the US yield-curve and suppress interest rates, in the hope of kick starting the stagnant US jobs and housing markets. This attempt to twist the yield curve was due to be wound up at the end of the month, but has now been extended to the end of the year.

Before the Federal Open Market Committee (FOMC) meeting, gold was up 4 per cent in the year to date. Though not in the same league as gains seen in 2011, it is hardly to be sniffed at in a market where US 10-year Treasuries are yielding 1.64 per cent. Commodities brokerage Sharps Pixley reports that physically-backed exchange-traded product (ETP) holdings are still up year-to-date by 26 tonnes – reflecting long-term investors’ desire to diversify into the safe haven of gold. But gold traders who rode the ten-year bull run don’t seem to be interested in steady gains. They want another of the rip-your-face-off moves that they have grown accustomed to. In the short-term, analysts point to the $1,640 June high as the break above which we will start to see an uptrend reestablished. But for the moment, the gold buyers seem to be sat on their hands, waiting to hear those three little syllables from the Fed chairman: “Q-E-three.”

Gold’s huge gains last year were largely driven by the perfect storm of the debasement of fiat currencies by central banks, European financial uncertainty and US debt concerns. This left investors with few places to shelter. Every time that another round of European debt crisis talks came to nothing, gold would rally. Cyprus yesterday became the fifth country to go cap in hand for a bailout, with the IMF reporting that the outstanding loans of Cypriot banks equal more than eight times the country’s GDP. But despite this latest development in the Eurozone disaster story, gold has remained virtually unaffected. For the time being, the gold price only has time for Ben Bernanke.