Gold Jumps On Bearish Talk From Fed: april 15, 2012

We got a classic example of how “jawboning” by Federal Reserve officials can move markets on Thursday, with New York Fed President William Dudley and Bernanke’s deputy, Janet Yellen, both sounding cautious about the US recovery –Yellen noting that “further easing could be warranted if the recovery proceeds at a slower pace than expected.”

Boom – up went equities and commodities, which had moved lower in recent days as a result of the problems in Spain. Platinum and palladium were up 1.4% and 2.6% respectively, while the silver price gained 3.2%. June-delivery Comex gold gained 1.2% to settle at $1,680.60. $1,680 is of course the overhead resistance level that has contained gold in recent weeks, so it will be interesting to see whether the yellow metal can post a solid finish above this level at the close of Comex trading in New York today. $33 is a key level for silver, and after that – if this risk rally has legs – the 50-week moving average around $35.40 could come into play. Getting above this average would be a sure sign that silver was off to the races again. But first, $33.

Unsurprisingly given traders headlong rush towards “risk,” the dollar dropped, with the Dollar Index (USDX) losing 0.64% to settle at 79.29. The USDX really is the “North Star” as far as predicting Fed actions is concerned. A rising USDX means a greater chance of more Fed stimulus; a falling USDX means less chance. Since the end of last year the European Central Bank has taken the lead in terms of money printing, which is why the USDX has been trending higher over the course of late 2011 and early this year (the euro represents 59% of the USDX).

“Inflate or die” remains the motto by which the major central banks are forced to live, owing to the debt crisis. They all want a weak currency, and after the drastic ECB action of recent months, it’s once again the Fed’s turn to print. Gold will be the last man standing.