HardAssetsInvestor

Written by Sumit Roy  |

July 17, 2012

Gold Holds Its Ground As Bernanke Keeps Mum, But QE3 Likelihood Grows

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We offer our latest analysis on the precious metals market.

The gold market remained in a static state over the past week, as prices held in their $1550 to $1620 range. Disappointing retail sales data on Monday added to QE3 speculation, but clearly, the market is not yet convinced that the Federal Reserve is ready to embark on a third round of bond buying.

In testimony to Congress today, Chairman Ben Bernanke did not offer any clues on the central bank’s future course of action, though he reiterated that the Fed "is prepared to take further action as appropriate to promote a stronger economic recovery."

The next FOMC policy decision is slated for Aug. 1.

But even though the Fed has yet to signal it will ease monetary policy further, a host of disappointing economic data over the past several weeks has certainly increased the likelihood of more action.

U.S. manufacturing is in contraction territory for the first time since 2009; nonfarm payrolls have expanded at a sub-100K rate for the past three months; and this past Monday we learned that retail sales in June tumbled 0.5 percent, sharply underperforming expectations, and is the third-straight month of lower retail sales.

Still, the Fed will likely await more evidence before it acts. Indeed, it was only at the last FOMC meeting that the central bank decided to extend Operation Twist. Thus, the Fed has clearly demonstrated its willingness to act.

We maintain our expectation that gold prices will eventually break out of their range to the upside. But in the meantime, the yellow metal is considered range-bound between $1550 and $1620 from a technical perspective.

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