This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Directionless Fed Pressures Gold

Stocks in this article: GLD

NEW YORK ( TheStreet) -- In commodities markets this week, all eyes are focused on Federal Reserve Chairman Ben Bernanke.

Investors in gold and other precious metals are looking for clues to determine the next likely direction in U.S. monetary policy. This has been a difficult task of late, given the conflicting messages sent by various members of the central bank. Clearly, there are dissenting views at the Fed with some members taking on a more supportive stance to extend the time frame of economic stimulus while others have suggested there are unintended consequences to these programs and that they should be phased-out.

Unfortunately, Bernanke's initial comments have done little to clear-up this confusion. The Fed chief's semi-annual testimony before Congress produced directionless statements that account for all possible scenarios and favor none. Specifically, Bernanke said that the quantitative easing programs "are by no means on a preset course."

In the most upbeat scenario, consistent gains would be seen in the labor market and consumer inflation would move toward the Fed's target rate of 2%. In this case, Bernanke has said that "the pace of asset purchases could be reduced somewhat more quickly."

Alternatively, the pessimistic scenario would include elements like an elevated unemployment rate (as the Fed's target of 6.5% is still far below current levels). Here, Bernanke hinted that the Fed might be willing to increase stimulus for short periods of time in order "to promote a return to maximum employment in a context of price stability."

Essentially, Bernanke is telling the market that the Fed is leaving all options on the table and that there is no underlying bias for the next direction in policy settings. But while this dependence on future data might seem like an even-handed, prudent approach to dealing with the economy, it does little to guide investors or financial markets as a whole. Of course, this is not the Fed's job but the added uncertainty is putting downside pressure on certain asset classes.

For gold investors, it is important to note that total holdings in GLD have dropped to their lowest levels since the beginning of 2009 (to roughly 935 metric tons). With demand weakening and gold ETFs seeing renewed liquidation, we will need to see a strong physical market in order to support valuations in the yellow metal.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs