Gold surges on QE3 hint and Euro crisis

City A.M. Reporter
GOLD surged to a record near $1,590 an ounce yesterday as the possibility of more Federal Reserve stimulus coupled with Europe’s deepening debt crisis fuelled bullion’s longest winning streak in five years.

Bullion’s gains accelerated after Federal Reserve chairman Ben Bernanke said the central bank is ready to ease monetary policy further if the economy weakens and inflation moves lower. Silver rallied nearly six per cent, moving in tandem with commodities, US stock markets and risk assets.

Bernanke’s comment served as a hint that policymakers were actively mulling a third round of stimulus, a strong boost for gold.

“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support,” Bernanke told the House Financial Services Committee as part of his semi-annual testimony.

Yet splits among the Fed over the prospect of a third round of quantitative easing (dubbed QE3) emerged within minutes of Bernanke’s statement, with fellow Fed official Richard Fisher saying: “I firmly believe that the Federal Reserve has already pressed the limits of monetary policy.”

“US banks and businesses are awash in liquidity,” Fisher continued. “Adding more is not the answer to our problems.”

For the economy to really gain strength, he said, Congress must resolve the long-term US debt and deficit problems and remove uncertainty for US businesses, Fisher said.

Bernanke also commented on the US fiscal crisis during his extensive speech, urging Congress to come to a quick resolution to raise the debt ceiling.

“The right analogy for not raising the debt ceiling is going out and having a spending spree on your credit card and then refusing to pay the bill,” Bernanke said. “That’s what not raising the debt limit is.”

Yet Michael Hewson of CMC Markets disagreed: “There was me thinking it was like going on a spending binge before asking for a credit limit so you can spend more,” Hewson said.