Gold and miner ETFs traded higher to end the week on speculation the Federal Reserve will announce more quantitative easing at its September meeting following a Friday speech by Fed chief Ben Bernanke.
The central bank chairman “left little doubt that he is looking toward doing more to give the economy a lift at the Fed’s next policy meeting in September,” reports noted Fed watcher Jon Hilsenrath at The Wall Street Journal.
SPDR Gold Shares (NYSEArca: GLD) rose 1.1% and Market Vectors Gold Miners (NYSEArca: GDX) gained 2.7% Friday morning after the text of Bernanke’s speech at Jackson Hole was released.
“As the Jackson Hole Economic Symposium comes into focus, the fresh batch of central bank rhetoric is likely to set the tone for September,” said David Song, Currency Analyst at DailyFX. “We may see the FOMC continue to endorse a wait-and-see approach at the September 13 meeting as the U.S. gets on a more sustainable path.”
Gold ETFs are sensitive to expectations of further stimulus by the Fed to juice the economy, as well as inflationary policies from the European Central Bank to fight the sovereign debt crisis.
“The world of monetary intervention has grown more in the last four years than in the preceding thirty since the conference’s founding in 1978. And given the macro outlook, it’s all but certain that Bernanke’s comments will revolve around the past execution of and future potential for monetary stimulus in a zero interest rate environment,” said Janney Capital Markets analysts in a Jackson Hole preview note.
“Most of the world’s central banks are trying to hold interest rates at or below the level of inflation. This strengthens the argument for buying gold because it means there is no opportunity cost for holding gold—in other words, investors aren’t going to be missing out because inflation is so low to begin with,” wrote iShares global chief investment strategist Russ Koesterich in a recent commentary. [The Case for Holding Gold ETFs]
In Friday’s speech, Bernanke said he’s still not happy with the strength of the U.S. economic recovery, and that the high unemployment rate remains a concern.
“Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market,” Bernanke said. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
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Full disclosure: Tom Lydon’s clients own GLD.
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