Gold Futures for Aug delivery declined sharply in a knee jerk reaction to $1579.4 from the days high of $1630.7. Gold Futures Prices dropped in a sharp reaction to Federal Reserve Chairman Ben Bernanke’s testimony speech to the Joint Economic Committee of the U.S. Congress. Bernanke said the U.S. is facing economic headwinds, especially due to the European Union debt crisis, but offered up no detailing steps on any fresh monetary stimulus package to promote more economic growth. Gold ticked higher initially when the market first saw headlines in which Bernanke said the Federal Reserve remains poised to act. But the market then quickly reversed course sharply in the opposite direction & deeply too as Bernanke’s testimony disappointed Gold market Bulls who wanted immediate gratification on economic stimulus & the financial markets that were hungry for clues about the prospect for a third round of Fed Monetary easing through bond buys. However, Bernanke at this time holding his cards close to his vest on the matter did not surprise most market watchers–many of whom still reckon the Fed will at some point down the road provide fresh monetary policy easing. Stocks pared gains on Bernanke’s remarks, but remained in positive territory following a steep rally on Wednesday.
Fitch Ratings reiterated on Thursday it would cut its sovereign credit rating for the United States next year if Washington cannot come to grips with its deficits and create a “credible” fiscal consolidation plan. Standard & Poor’s made history in August 2011 when it cut the U.S. credit rating to AA-plus from AAA. It has held it with a negative outlook ever since. Moody’s Investors Service has the United States rated at Aaa, also with a negative outlook as of November last year. The United States is the only country (of four major AAA-rated countries) which does not have a credible fiscal consolidation plan,” and its debt-to-GDP ratio, or how much debt it has relative to the size of the economy, is expected to increase over the medium term. Fitch revised down its credit outlook for the United States to negative in November from stable after a special congressional committee failed to agree on at least $1.2 trillion in deficit-reduction measures.
The United States is the only one of the four largest economies whose debt as a percentage of GDP is expected to increase over the next five or six years,” the four being, United States, Britain, Germany and France. Britain, unlike Germany and France, is the most sensitive of Europe’s large economies to the fallout from a Greece exit. The euro zone is the UK’s biggest export market.
It also said it would immediately cut the credit ratings on Cyprus, Ireland, Italy, Spain and Portugal if Greece were to exit the euro zone. Additionally, all euro zone nations would have their ratings put on its negative ratings watch list, setting a six-month time frame for a potential downgrade.
Weak U.S. employment data last week and an escalation in the euro zone’s crisis has raised speculation the Fed will again have to step in to support a fragile recovery. His comments stood in sharp contrast to those of Fed Vice Chair Janet Yellen, who late on Wednesday made the case for further monetary stimulus to insure against the risk of a downturn. Bernanke made no such suggestions, but he did tell legislators’ tighterU.S. fiscal policies set to kick in early next year barring congressional action “would, if allowed to occur, pose a significant threat to the recovery.”
A government report on Friday showed the economy created just 69,000 jobs in May. Bernanke said the numbers could signal that faster economic growth is needed to keep the labor market on a path of steady improvement. Bernanke said he did not want to prejudge the outcome of the Fed’s next meeting on June 19-20. He said the main question policymakers will face is: “Will economic growth be sufficient to achieve continued progress in the labor market?”
As of yesterday, ECB kept its refinancing rate unchanged at a record low of 1 percent and the deposit facility at 0.25 percent and President Mario Draghi warned his bank cannot make up for other institutions’ lack of action. This disappointed markets, which had expected him to at least send out a signal that more easing was forthcoming.
Growth in major emerging economies like Brazil, India and China has also slowed sharply. China responded on Thursday with its first interest rate cut since 2008. Meanwhile, (RBI) Reserve Bank of India Deputy Governor Subir Gokarn indicated at the start of the week that a slowing economy and lower oil prices leaves room for a rate cut. Easy monetary policies have historically been positive for Gold Futures prices.