Gold testing price floor ahead of Yellen testimony

Friday’s numbers may strengthen the Fed’s hand as it prepares to start winding down its QE program running at $85 billion a month and set to reach $4 trillion by the end of the year.

The money printing in the US and similar action in Japan, Europe and elsewhere following the financial crisis in 2008-2009 have been a massive boost for gold.

Gold was trading around $830 an ounce before Chairman Ben Bernanke announced Q1 in November 2008.

All the easy money sloshing around on financial markets burnished bullion’s reputation as a hedge against inflation and as a storer of wealth amid the debasement of paper currencies.

While the unprecedented $9 trillion-plus global monetary expansion was no longer pushing the gold price higher in 2013, it was still providing a solid price floor.

But that floor is now being severely tested with inflation worries proving to have been overblown and CPI in developed economies showing historically low rates of price increases and the US dollar strengthening.

The US central bank’s nominee chairperson Janet Yellen will deliver testimony to the US Senate Banking Committee on Thursday with the market waiting to here whether the noted dove and architect of the QE program has changed her views on the efficacy of the program.

Talk of an earlier than thought start to the taper has also prompted hedge funds cut bullish gold bets, adding 37% to short contracts to November 5 according to US Commodity Futures Trading Commission data.

The precious metal is down more than 23% in 2013, dropping to a near-three year low of $1,220 at the end of June, and is set break its unbroken 12-year bull run this year.