Fed Chairman did not make any mention of QE3

Gold reclaimed the $1,800 per ounce level Friday afternoon as the majority of the commodities complex rebounded from earlier weakness. COMEX gold futures, per the December contract, initially slid toward $1,765 following release of Ben Bernanke’s speech after the Fed Chairman did not make any mention of QE3. However, gold quickly bounced back, reaching an intra-day high of $1,812.60 per ounce at approximately 2:30pm ET and holding onto the majority of its gains later this afternoon.

Goldman analyst noted that a further decline in interest rates from QE3 is unlikely to have “a significantly positive effect” on U.S. housing conditions, which is critical to generating a more sustainable economic recovery. He based this on “the large amount of unoccupied inventory that currently hangs over the market” and households’ inability to extract equity from their homes to help fuel consumer spending. In addition, QE3 would likely lead to higher food and energy prices, further curtailing economic growth.

Although Stehn did not discuss the specific implications of QE3 for the gold price, they would likely be quite positive. The inherent currency debasement that stems from money printing is bullish for gold prices. Notwithstanding whether QE3 is announced or not, the recent flurry of soft economic data presents a positive macroeconomic backdrop for gold prices. Policymakers will likely engage in further Keynesian stimulus measures, an outcome which would be music to the ears of those bullish on the gold price.