Good for Gold: Thus Spoke Ben Bernanke

Gary Wagner & Robert DiLallo
thegoldforecast.com

Keep in mind that markets will be closed in New York on Monday for the Labor Day holiday. Following the main body of this week’s article you will see our end-of-week gold chart, a technical analysis, and a brief “proper action” bullet based on a merging of both fundamental and technical analyses. Because of the monumental move on Friday, you will also see a link below that let’s you view this weekend’s entire video report. There are a number of observations that Federal Reserve Chairman Ben Bernanke made today at the conclusion of the Jackson Hole “summit” that clearly affected gold’s price today in New York. The first noteworthy statement was: "I'll talk about the implications for the Federal Reserve's ongoing efforts to promote a return to maximum employment in a context of price stability. "The use of the word “ongoing” tells us that there is more intervention on the way. Consensus seems to be split as to whether, if and how much. The FOMC meeting of September 12 and 13 will be the first formal opportunity for the Fed to act.
 
Bernanke also said the Fed, in facing this world crisis, is “learning by doing.” This seems to imply that the learning is not done with, and the doing is still on the table. He also warned about the “deflationary trap” that became all too familiar in the Japanese economy in the last two decades and crippled the world during the Great Depression of the 1920s and 30s. The central bank’s directors seem to be happy with the current 2% inflation rate in the U.S., which should be read as a positive for more stimulus or bond extension. More inflation would, of course, be better for gold, but inflation versus deflation is a main concern. He also said: “Stresses in credit and financial markets continue to restrain the economy.”  While there has been substantial easing of credit for business loans and other forms of investor underwriting, the housing market has yet to get a kick-start. Bernanke spoke at length about the poor labor market and its economic as well as spiritual and social ramifications. In fact, the last two paragraphs of the Jackson Hole statement focused intently on joblessness for tens of millions: “Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” We thought it was also interesting that he essentially beseeched lawmakers to solve the middle- and long-term budget and debt problems while simultaneously warning them off any drastic short-term belt-tightening or revenue-raising. The next event on the horizon is the meeting of E.U. bankers next week. If the Europeans express either sentiment for or unveil concrete plans to stimulate and stabilize their economic zone, the bull will be thundering day and night. It will also give China the final nudge that it needs to join with the big boys and girls. On a technical basis, Friday’s upside surge in gold and silver prices is a continuation of the breakout we identified last week. However, there is one key difference. The first breakout in gold entailed breaking above recent tops at 1627 to 1634. Discussed in depth in our members’ video Friday, this most recent breakout is a key move above former resistance. The correction in gold prices witnessed midweek took us exactly to former resistance, which now has become support. Maintain long gold @ USD 1636, stops below USD 1608. Move stops Sunday or Monday. thegoldforecast.com