Trying to explain the reasons for the price action in the markets today is an exercise in futility as there are far too many cross currents at work and far too many hedge fund computers sloshing money all over the place. And this does not even take into account the parasitical HFT crowd.
That being said - gold initially dipped a bit lower and came off its best level early in the session as Bernanke's highly anticipated speech turned out to be a dud. Why these guys expected him to come out and announce another round of QE3 escapes me for the reasons we have detailed here on this site previously. The political environment just did not permit it without a SERIOUS DEGRADATION of the economic data (not to mention the glaringly obvious fact that is DOES NOT WORK).
After the initial knee jerk lower (which also took silver down with it), gold moved back up again as the speech was interpreted by the market as saying that the economy was very weak and that the Fed was closely monitoring the upcoming economic reports. Most took it as saying that the Fed left the door open for additional monetary stimulus next month in September and reinforced the demand for gold as a safe haven. Once that theory seemed to gain traction, gold began money steadily higher as the Dollar began heading steadily lower.
I also happen to think that with Bernanke passing the ball off to the political leaders to address the structural issues plaguing the US economy, those who wanted to put their trust in those clowns to fix anything decided that gold looked mighty attractive and decided to trust it instead of their princes.
The other issue working for gold was the thinking that what ECB President Trichet might say this weekend would actually be more important that what was contained in Bernanke's speech. After all, Europe is experiencing its own version of its credit crisis and the ECB is going to be under pressure to deal with that, not the Fed. Whatever they might do, if anything further, to provide some form of monetary accomodation or further increase the size of their bond buying program, makes gold all that much more attractive.
Let me make a quick comment in regards to some of the "experts" that are continually trotted out to pontificate by stating that "gold is not a safe haven". Have you ever noticed that it is ALWAYS AFTER A SELL OFF IN GOLD that these mushrooms pop up and appear for the sole purpose of annoying us? They are never anywhere to be found while the metal is making one record high after another. But let the market experience a normal price retracement such as those that occur in any bull market and out they come dazzling us with their brilliance. My response is simple - if they think it is not a safe haven, then they should have some courage and short the market with reckless abandon to prove how smart they are? After all, once it broke out above $1500, they could have sold it short over and over again all the way to $1900. After all, a $400 dollar drawdown on a short position would only amount to a paper loss of $40,000 on each short position initiated. What's that to these wizards???
I cannot think of any other statement that so utterly disqualifies these individuals from being taken seriously as stating that gold is not a safe haven. Not only does it display amazing ignorance, the statement has also been proven to have been blatantly erroneous. What else can explain a $400 rally since the beginning of July? Indigestion induced by a bad batch of pepperoni pizzas that made the round in the investing community?
Gold is and always will be a measure of the CONFIDENCE that investors have in their monetary and political leaders. It is that simple.
If you doubt my comments, then let a more objective argument make the case and convince you of the utter stupidity of these babblers who are legends only in their own minds. Following is a chart comparing the price of gold to the price of the long bond. Both are considered CLASSIS SAFE HAVENS.
Which one has proven to have been the better choice as a safe haven since the first inception of the Fed's failed QE policies were first begun? Yes, you have guessed it - Gold.
The chart settles the argument. Ignore the babblers and pay them no heed. They have been discredited and can be and should be ignored by savvy traders and investors.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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