(Kitco News) - Federal Reserve Chairman Ben Bernanke speaks Wednesday, the same day the June Federal Open Market Committee meeting minutes for June are released, and the combination of the two events could influence gold and other financial markets.
It was after the June FOMC meeting that the Fed laid out its plan to eventually end bond-buying, known as quantitative easing. Despite Bernanke stressing that tapering purchases of bonds depended on the economic outlook was not the same as tightening, the markets didn’t take it that way. Instead, stock and commodity markets, including gold, fell and yields on U.S. Treasury securities rose on worries of rising interest rates.
Since then the markets have come off their lows, but the release of the minutes could reinforce the more hawkish views and leave markets to focus on tapering and higher interest rates again.
A few market watchers said Fed officials appeared surprised at the jump in yields, which led to several of the more dovish Fed officials to soothe worries that tapering is tightening since the release of the minutes. Recently yields on the 10-year U.S. Treasury note rose as high as 2.75%, which was nearly a two-year high. Since then yields have slipped back to about 2.64%.
“Bernanke even said he was puzzled by the rising yields,” said Alan Bush, senior research analyst, ADM Investor Services.
Bill O’Neill, principal, LOGIC Advisors, said the tapering fears have lessened somewhat. Still, “tomorrow’s FOMC minutes and any comments from Chairman Bernanke will be very important. Every gold trader should have an eye on what comes out of that,” O’Neill said.
The FOMC meeting minutes are set for release at 2 p.m. EDT. Michael Wallace, global market strategist at Action Economics, said the minutes could reignite the worries about tapering. Wallace said the bond market lumped together the idea of the end of tapering and tightening of interest rates, even as Fed officials tried to delineate between the two.
“The market (acts if) we’re closer to the end of the QE, even though we’re buying Treasurys and MBS (mortgage-backed securities) every day,” Wallace said.
O’Neill said if the minutes are perceived as being hawkish, that could hurt gold. “If they come out there’s indications ‘yes, we’re going to have September tapering,’ or people thinking that way, that would be something the gold market would not take very well,” he said.
Bush said if the FOMC meeting minutes have a hawkish bent, financial and commodity markets are likely to dip again, although perhaps not has sharply as they did after the June meeting. “Stocks and commodities will go down. Yields will rise. Precious metals could fall,” Bush said.
During the June meeting, Bernanke said the Fed will watch economic data for clues to guide it as it considers ratcheting down stimulus. Bush said the Fed probably is also looking at the recent spike in interest rates as it considers winding down the stimulus.
“The rising rates is a major factor and can be just as important as improving economic numbers,” Bush said.
BERNANKE SPEAKS IN AFTERNOON
Bernanke’s speech is at 4:10 p.m. Wednesday to the National Bureau of Economic Research in Boston. His address is titled: “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future.”
The speech will be largely academic, Wallace said, but there is a question-and-answer period. Wallace doesn’t expect Bernanke will address policy since he will be giving a policy update later, although questions from the audience could bring up the question.
In that case, the bias might be toward easing concerns about tapering, Wallace said.
“It’s possible that Bernanke will try to collaborate what (New York Federal Reserve President William) Dudley said and try to (minimize) concerns about QE tapering,” he said.Allen Sykora contributed to this article.
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By Debbie Carlson of Kitco News; email@example.com,