Both metals settled down from their intra-day highs, however, after Ben Bernanke backed off from comments he made about a third round of quantitative easing. In his testimony to the Senate Committee on Banking, Housing and Urban Affairs, Bernanke said the Fed was "not prepared at this point to take further action." Gold and silver soared Wednesday, up more than 1% and 7%, respectively, after Bernanke hinted that more monetary easing was a possibility in his testimony to the House Financial Services Committee. Some Fed officials had also said in the last FOMC minutes that if unemployment stays high and inflation low that more money printing might be needed. Bernanke's backtrack took some wind out of gold's sails, but the metal still managed to eke out a record settle of $1,589.30 an ounce. "More gains seem likely with gold on-course to challenge $1600 as default fears continue to drive investors towards more tangible assets," says James Moore, research analyst at FastMarkets. In the World Gold Council's Gold Investment Digest for the second quarter, the largest inflow into ETFs was in Europe, which saw net flows of 29.2 tons as default fears and violent riots in Greece sparked a rush into gold. The report also said that the daily net amount of gold transferred between accounts in April at the London Bullion Market Association was 22.5 million ounces, 22% higher than the 2010 average, indicating a flurry of trading activity. "There is also evidence of robust and increasing purchases of coins and bars on the part of European investors seeking to diversify," said the report, and the laundry list of bad news continues as is gold buying. The S&P downgraded Greece's rating further into junk territory now one level up from default. President Obama reportedly walked out of debt ceiling negotiations Wednesday, and the clock is ticking to raise the ceiling before the beginning of August.The Wall Street Journal reported that the S&P privately told U.S. policy makers that it would consider a late interest payment on anything, even social security checks for example, a default even if bondholders were paid their interest. Some traders, however, were taking profits, which also kept gold off recent highs. Scott Redler, chief strategic officer at T3Live.com, says if an investor is trading around a core gold positions, meaning that he holds some gold but trades the rest, he would advise taking some off the table to book gains. Silver, for Redler, is a different story. He went long silver on Wednesday and is looking to add until the $42 an ounce level. Anthony Neglia, president of Tower Trading, says that once silver hits $40 "it will be the magic number." With enough negative news to keep investors in gold and silver, their biggest challenge comes from a stronger U.S. dollar. The currency is vacillating between being a safe haven when Eurozone default worries dominate headlines. But the currency also suffers as hints of more quantitative easing from the Federal Reserve surface and U.S. debt issues top fears. More money printing would flood the system with dollars and devalue the paper currency, making gold and silver more appealing as a form of money. Redler admits that the dollar could "act as a little bit of a headwind" and might pressure the metals and he is using their relationship as a trading tell. "When the dollar is going up and gold is going up and you're in front of a breakout that gave some clues to get a little more involved with a bigger share size and once you see the relationship change maybe you scale it down and get to a comfortable position." Also helping gold and silver Thursday was news that inflation in India rose to 9.44% in June from 9.06% in May as well as the news that producer prices in the U.S. fell 0.4%, more than expected. Although low inflation is normally bad for gold prices as investors don't need protection against weak currencies, one of the conditions of more quantitative easing has been low inflation. If prices start to decline in the U.S., core inflation is at 1.3% while overall prices are at 3.2%, then the Fed might be ok pumping more money into the system. Matched with soaring inflation in India, the data Thursday are a green light for gold. The U.S. will release its inflation reading on Friday expectations are that prices climbed 0.2%. Gold mining stocks were struggling after a two-day rally. Kinross Gold ( KGC) was down 0.18% to $17.04 while Yamana Gold ( AUY) was down 1.48% at $12.96. Other gold stocks, Agnico-Eagle ( AEM) and Eldorado Gold ( EGO)were trading at $64.67 and $17.71, respectively.
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