Dollar sinks, gold hits new high after Bernanke speaks

The dollar sank on after Bernanke spoke on the latest Fed updates. With no intention to tighten credit, the dollar continues its falls while precious metals and commodities continue their climb. The Fed plans to keep their June 30 deadline of ending the stimulus program.

April 27, 2011
Tom Petruno

The dollar sank further Wednesday and gold and silver prices surged as Federal Reserve Chairman Ben S. Bernanke signaled the Fed was in no hurry to tighten credit.

The DXY index of the dollar’s value against six other major currencies (charted below) fell to 73.29 at about 1:05 p.m. PDT, down nearly 0.8% from Tuesday and its lowest level since Aug. 2008. The index now is down 7.3% year to date.

old has soared to $1,530 an ounce in electronic trading, a new record nominal high and up $27, or 1.8%, from Tuesday’s futures-market close.

Silver was at $48.13 an ounce, up $3.07, or 6.8%, after falling $2.09 on Tuesday.

In his first-ever post-Fed-meeting news conference, Bernanke acknowledged higher inflation pressures but reiterated the Fed’s view that those pressures “appear to be transitory.”

As for the sliding dollar, which many Fed critics blame on the central bank’s easy-money policy, Bernanke said the Fed believes that “a strong and stable dollar is in the interests of the U.S. and the global economy,” and that the best way to lift the dollar was to boost the U.S. economy -- which is what the Fed is trying to do with monetary policy, he said.

Although Bernanke confirmed that the Fed on June 30 would end, as scheduled, its controversial economic-stimulus program of buying Treasury bonds, he said the Fed had no plans to begin selling those securities. Policymakers also are sticking with their commitment to keep short-term rates near zero for an "extended period."

Overall, Bernanke’s comments are “not going to change perceptions of a dovish Fed, or dent the positive global risk appetite view that has also translated into a softer dollar,” said Alan Ruskin, a currency strategist at Deutsche Bank Securities.

In other words, with U.S. credit still easy, some investors and speculators are borrowing in dollars to pour into commodities, emerging market stocks and other relatively high-risk markets.

Gold and silver have surged since August in part on fears that the dollar would continue to slide, eroding Americans’ purchasing power. The metals are many investors’ favorite way to hedge against declining paper currencies and higher inflation.

The stock market remains unruffled by the action in the dollar and the precious metals and continues to bet on economic expansion underpinned by the Fed: The Dow Jones industrial average closed with a gain of 95.59 points, or 0.8%, to 12,690.96, its highest level since May 2008. It's up 9.6% this year.

Treasury bond yields rose modestly. The 10-year T-note yield ended at 3.35%, up from 3.31% on Tuesday.

-- Tom Petruno

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