Gold News

Gold Dumps 2% as Bernanke Talks Up the Dollar; Euro Sinks Faster, 'Tobin Tax' Mooted in Austria

Gold Prices sank 2.0% at the US opening on Tuesday as the Dollar surged on the foreign exchange markets following a speech by Fed chairman, Ben Bernanke.

"Fed policy well-positioned, eye on dollar," concluded Reuters after Bernanke told an audience of central bankers in Barcelona that the subprime housing crash had put "some downward pressures" on the US currency.

But he added that the Dollar "remains strong and stable".

One hour later, the US Census Bureau then announced a 1.1% increase in Durable Goods orders for April, surprising Wall Street analysts – if not those currency traders already buying the Dollar – who'd forecast a 0.1% fall.

"We are attentive to the implications of changes in the value of the Dollar for inflation and inflation expectations," said Fed chairman Bernanke today.

"[We] will continue to formulate policy to guard against risks to both parts of our dual mandate" – which he glossed as "foster[ing] maximum sustainable employment and price stability."

(Does anyone outside the Fed still believe it can target both inflation AND jobs using interest rates? Read On Walton's Mountain here...)

Over on the foreign exchange markets, the European currency meantime dropped 1.5¢ inside 25 minutes, hitting a two-week low after its sharpest drop since mid-March.

That slide capped the loss for European investors holding gold to 1.1%. The metal then added €3 per ounce as the Euro continued to slide on the US Durable Goods data.

The Gold Price in British Pounds lost 1.5% before regaining £2 to £448.50 per ounce.

Over on the equity markets, meantime, Western banks shook off Monday's slew of bad news, boosted by what the Financial Times called "talk of stake-building" in Royal Bank of Scotland.

Formerly the UK's second-largest bank by market cap, RBS sank to fourth place in late May as its share price fell by one-third.

"Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside," as Ben Bernanke said of the US economy today.

"Recent increases in oil prices pose additional downside risks to growth."

The price of crude oil slumped $1.40 per barrel as the Fed chairman spoke, slipping back below $127 on news that Norwegian oil producers may have averted a strike by rig-workers in the North Sea.

On Monday the US Energy Information Administration forecast oil prices will hold above $100 per barrel to the end of 2009 and perhaps longer.

Jacques Diouf, director-general of the United Nation's food division, today blamed high oil prices and governmental bio-fuel policies for driving food prices as a result.

"Nobody understands how $11-12 billion a year on subsidies and protective tariff policies had the effect of diverting 100 million tonnes of cereals from human consumption," he said in Rome, "mostly to satisfy a thirst to fuel for vehicles."

Trying to apportion blame for the surge in energy prices, the US Commodity Futures Trading Commission (CFTC) is now investigating the role of "speculation" in driving crude oil higher.

It is expected to add the markets in cotton, wheat, corn and soybeans to its investigation, according to Reuters – "otherwise the politicians are going to take the power out of their hands," as one US analyst puts it.

And across the Atlantic, the finance minister of Austria, Wilhelm Molterer, said in an interview last night that he's proposing a Europe-wide tax on investors trading food and fuel markets

"A tax on speculation would boost transparency in the markets," Molterer told Bloomberg TV, echoing the so-called 'Tobin Tax' proposed during the runaway inflation of the late 1970s.

"It would send a signal that speculation is unwanted."

Herr Molterer didn't say whether speculators selling food or fuel contracts short – rather than just going long – should also be subject to taxation.

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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