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Bernanke Speaks Out, Dollar Freaks Out.
(January 25, 2012) Fed Chairman Ben Bernanke held a press conference today, and gold promptly rose by fifty dollars. The same market that roundly ignored the President’s State of the Union address last night, made its normal surge while the Fed chairman spoke.
We have seen this same movie countless times (Ben on TV in the afternoon, the dollar swoons, gold goes to the moon).

There is probably a gaggle of commodity traders who made a good living, just by being aware of Ben Bernanke's public schedule. Every time that the Fed Chairman is going to be on television, just buy gold ten minutes before he starts talking, and sell about an hour later. Depending on the leverage employed, you can make quite a killing on moves of 3% or so, and you don't even run the risk of carrying the position overnight. Why make risky trades when a sure thing presents itself a few times every year?

The day started sleepily enough, with gold trading down into the $1640s early on Wednesday 1/25, but after the press conference was over, reached $1,709.00 later in the afternoon. Silver, which was as low as $31.55 this morning, took off under the influence of FOMC Chairman Bernanke’s dollar-slaying rhetoric, to trade nearly two dollars higher before the day ended.

Nothing much exciting was said, except that interest rates will remain low through 2014, which is to say, possibly forever, if the Fed is to be believed.

The transcript of the Fed Open Market Committee report is presented here without comment:

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.


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