Federal Reserve chief Ben Bernanke appeared more upbeat than usual during his testimony to politicians in Washington DC, giving no hint that more quantitative easing is on the cards.
Ultra-loose money has previously been one of the drivers of high precious metal prices as the dollar is devalued and economic worries see investors turn to “safe haven” assets.
But yesterday the greenback hit session highs against the euro following Bernanke’s comments. Gold sank around five per cent to below $1,690 an ounce, while silver also lost over five per cent.
The US economy grew by a better than expected three per cent annualised in the fourth quarter of last year, according to official data released yesterday.
The Fed expects the economy “will expand at or somewhat above the pace registered in the second half of last year”, which was 2.25 per cent year-on-year.
And last night the Fed’s Beige Book – a survey of business conditions in a dozen American districts – struck a cautiously optimistic tone.
“Overall economic activity continued to increase at a modest to moderate pace in January and early February,” the Book said.
“Reports of consumer spending were generally positive except for sales of seasonal items, and the sales outlook for the near future was mostly optimistic.”
Manufacturing and services have both begun the year on a reasonably strong footing, the survey suggested.
Bernanke had earlier cited “some positive developments in the labour market”, during his testimony. “The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected,” he said.
Unemployment in the world’s largest economy remains elevated, Bernanke stressed, after describing the recovery as “uneven and modest by historical standards”.
“But even that is more upbeat when compared with the ‘frustratingly slow’ language he had been using in recent speeches,” noted Paul Ashworth of Capital Economics.
“[Bernanke’s] statement that employment is recovering at a better-than-expected rate implies that if quantitative easing is coming, it won’t be for a while,” said Steve Scacalossi, director of global precious metals at TD Securities.