PRECIOUS METALS: Gold Rises On Bernanke's Easy-Money Outlook

Gold prices rose to their highest level in almost two weeks as investors turned to the metal after Bernanke showed his support to the central bank's monetary policies, showing that more monetary easing may be on its way. News like this boosts gold's appeal as an alternative currency to investors.

By Matt Day
March 26, 2012, 2:26 p.m. ET
Wall Street Journal

NEW YORK (Dow Jones)--Gold futures rose to their highest level in almost two weeks on Monday, as investors sought the metal as an alternative to the U.S. dollar after Federal Reserve chairman Ben Bernanke reiterated his support for the central bank's accommodative monetary policies.

The most actively traded gold contract, for April delivery, rose $23.20, or 1.4%, to settle at $1,685.60 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest ending price since March 13.

Accommodative monetary policy can boost gold's appeal as a currency hedge by raising concerns that the value of paper currencies might take a hit. Analysts said much of gold's gains since the financial crisis have come as traders bet moves by central banks in the U.S. and Europe to keep cash flowing after the 2008 financial crisis would rattle currency markets.

In comments on Monday to the annual conference of the National Association for Business Economics, Bernanke said the positive trend in the U.S. labor market may not last, and suggested that accommodative policies will be kept in place to support the economic recovery.

"The mere mention of the fact that ultra-low interest rates are helpful to an economy that is trying to grow" was enough to push gold prices higher, said Jon Nadler, an analyst with Kitco Metals, in a note. "Precious metals players remain desperately fixated on any promise of a QE3 by the Fed, or even the hint of one," he said, referring to a potential third round of Fed bond buying, or quantitative easing.

The dollar pulled back after the release of Bernanke's prepared remarks, and gold gained $15 an ounce in the span of about 15 minutes. A weaker dollar can boost dollar-denominated gold by making the futures appear cheaper for buyers using other currencies.

The ICE US Dollar Index, which tracks the currency against those of some major U.S. trading partners, on Monday touched its lowest level since March 2.

Gold futures edged higher last week, taking cues from weakness in the dollar and demand for the metal as a safe haven on worries about tensions surrounding Iran's nuclear program.

But despite gold's recent gains, uncertainty about the strength of physical demand for the metal has made some investors cautious.

In India, the world's top gold importer "physical demand has been fragile in recent weeks with only sharp price corrections prompting interest," analysts with Barclays said in a note.

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