After ticking upwards toward 74 in early trading of the DXY dollar index, the U.S. dollar tanked down to near 73 Wednesday afternoon as Fed Chairman Ben Bernanke touted the benefits of loose monetary policy and discussed future plans. It was the first ever open press conference held by the United States' near-century-old central bank. Journalists asked a variety of questions to Bernanke after he explained the Fed's outlook on past and current actions, as well as future implications depending on efficacy of taken measures and public perception of the economy and currency.
The Dow Jones Industrial Average crept up steadily prior to Bernanke's speech, while a buying surge in gold took the metal to a new all-time high over $1522/oz. Silver buyers had less conviction in early trading, though the aggressive selling that knocked 10% off the spot price earlier in the week was not evident. After a few choice words out of Helicopter Ben, silver climbed from $46 to $48 per ounce and closed over 7% up from daily lows.
Ultimately, Bernanke's press conference confirmed the status quo. Still, his language was clearer and stronger than typical "Fed speak." He gave a lucid explanation of how the size of the Fed's balance sheet affects markets, more so than daily buying operations. He indicated that an end to QE2 would not result in asset sales. Surprisingly, he even discussed the weakening safe haven status of the U.S. Dollar and pointed to MENA turmoil and emerging market growth as major commodities drivers over which his institution has no control. Bernanke regularly insisted that near term inflation threats are subdued by expectations of cooling commodities markets. The markets didn't appear convinced as West Texas crude oil shot through $113/barrel and gold continued making new highs.
Despite violent selling in silver just days ago, historically low rates of ownership among investors and rapidly increasing demand may fuel resumed price appreciation. Gold appears to establish a more concrete floor by the day and remains in the strongest uptrend of any asset class. Moves in oil are driven more by supply constraints than investment demand as widespread tentions in the Middle East persist. Strength in stocks Wednesday looked to be driven entirely by dollar weakness, as Canada's TSX, which generally tracks the S&P 500, finished in the red despite a high concentration of precious metals mining stocks. Emerging market currencies also notched big gains as investors fled the world's reserve currency.
The stars are once again aligned for gold and silver. The Aussie (FXA), Loonie (FXC), Rand (SZR) and Real (BZF) appear poised to shine as well, due to national fiscal health relative to the USA and status as commodities exporters.
Disclosure: I am long SLV.
