Gold Traders Watch as Fed Speeches Impact Price of Gold

Eighteen months ago, speculators listened to speeches from the Fed hinting at Qualitative Easing, round two. Gold rose steadily for four months as a result. Just over six months ago, Bernanke announced the rate lock for the next two years, pushing gold to record breaking heights, topping out at just over $1,920 per troy ounce. Now, the careful avoidance of any mention of a QE3 by Bernanke, Chairman of the Federal Reserve, plays havoc with the price of gold. Bullion prices dropped a stupefying $100 per ounce in only one day. That made for a 5% drop in the total price of gold. Even with the recent downturn, market conditions are right for bullion to remain bullish. A third round of Qualitative Easing would have virtually guaranteed spectacular hikes in the price per ounce of both gold and silver, but the lack does not guarantee a long-term decrease. The locked in low interest rates help to keep gold on an upward trend. Even a decision from the Fed to avoid printing and dumping additional dollars into circulation does not reduce the effects of two prior rounds of QE.

Bernanke may be cautiously hopeful about the American economy, with recent reports showing gains in real estate and decreasing unemployment, but it is likely that additional measures to encourage economic expansion will go into effect. Policy makers historically react to economic downturn with increasing governmental support. As the government takes an increasingly active role in prices and production, gold prices rise.

The recent price drops for the shiny yellow metal are nothing more than normal corrections. Market indicators show that gold may have reached its current bottom, closing near its 50-day moving average. This appears to be the lowest level that gold will reach. On several occasions, the precious metal has trended close to dropping below that key number, and in each case recovered slightly.The fact that gold dropped only 5% at a time when the dollar experienced gains is telling. The recent announcement by Iran that gold is an acceptable currency for debt payments also helps it retain value in the face of recovering currencies.

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