Fed chief’s comments bullish for commodities

Precious metal and commodity prices moved higher in trading yesterday, on the back of Goldman Sach’s bullish pronouncements on crude oil and dovish comments from a senior US Federal Reserve official.

As per normal whenever commodities come back into vogue among the world’s traders, silver had a particularly strong day – the silver price on the May Comex contract settling up by $1.22 (3.5%) at $36.121 per troy ounce. The May gold contract moved up by $7.90 (0.5%), settling at $1,523.20.

Unlike silver and other precious metals, gold prices have benefited in recent days from gold’s status as a monetary metal. New record euro-denominated gold prices – as well as price appreciation in British pounds – is helping to support the US dollar gold price, which is now ensconced above $1,520 per ounce, with good support above the psychologically-important $1,500 level.

Copper and crude oil futures also gained yesterday, with comments from St Louis Fed president James Bullard encouraging speculation in commodities. Bullard remarked in a speech given to a rotary club in Missouri that the Fed will likely not effectively tighten monetary policy until the second half of 2012.

The weak state of the US economy means that the Fed is happy to see the dollar lose value. Moreover, the problems that will hit the banking system as a result of defaults by European nations – as well US states and municipalities – will likely lead to further difficulties for banks, resulting in more pressure for accommodating monetary policy from the world’s central banks. This will mean more money printing.

As comments in the Sunday New York Times from Christina Romer – former chairman of the Council of Economic Advisers – made clear, those economists advising those at the top in Washington regard a weak dollar policy as essential for reviving manufacturing in America.

To what extent monetary authorities can control this state of descent remains the open question.

Source: Gold Money