Bernanke: Damp squib

After a brief $15 drop around lunchtime during the US Federal Reserve press conference gold quickly regained its footing and settled back in its narrow trading range of $1,640–$1,650.

The Fed voted to continue its near-zero interest rate policy through 2014, but gold has long priced in very loose US monetary policy.

What gold bulls were waiting for did not materialize.

Chairman Ben Bernanke gave no indication – did not even drop a hint – that a third round of quantitative easing may be in the offing.

QE3 would be first prize for bullion backers, but there also wasn’t any news that the Fed’s maturity extension program called ‘Operation Twist’, set to expire in June, was being modified or extended.

If the Fed stops flooding markets with cheap money, gold’s allure as a storer of wealth and an inflation hedge is diminished.

Today could have been worse – gold is now down 8% from its highs for the year hit at the end of February and the spikes downward have all been thanks to the Fed.

At the start of April gold dropped some $60  in a single session when Fed minutes appeared to indicate QE3 was off the table.

At least that did not happen today.

Quantitative easing has been a massive boon for gold.

The Fed’s new near-zero interest rate policy and purchases under QE1 kicked off on 16 December 2008. On 15 December 2008 an ounce of gold cost $837.50.

While gold bugs must be disappointed that QE3 may not be happening, others are waiting for it even more anxiously.

Like Bill Gross, founder of Pimco which oversees more than a $1 trillion in assets. He has placed a $133 billion bet that QE3 will happen.