Gold Prices "Could Correct if Bernanke Disappoints", ECB May Need to Take "Exceptional Measures"

Gold Prices dipped below $1665 per ounce Wednesday morning in London, slightly below where they started the week, while stock markets edged lower, with markets focused on upcoming meetings of central bankers in the US and Europe. 

Silver Prices fell to $30.76 an ounce – in line with last week's close – as other industrial commodities also ticked lower, following news that iron ore prices in China had dropped for the 13th day in a row.

On the currency markets, the Euro held its ground above $1.25 this morning, with two days to go before Federal Reserve chairman Ben Bernanke gives a speech on monetary policy at the annual Jackson Hole conference of central bankers.

A number of analysts have already predicted that the Fed will announce further monetary easing when it meets in a fortnight.

However, "the Jackson Hole conference is not the forum for Bernanke to make any strong commitment to easing," reckons Marc Ground, commodities strategist at Standard Bank.

"[But] this will not prevent the market from attempting to 'read between the lines' — leaving room for all manner of interpretations and price responses."

"In terms of further easing, nothing has been decided," Federal Reserve Bank of Dallas president Richard Fisher, a non-voting member of the Federal Open Market Committee, said Tuesday.

"Nothing is predestined."

"Gold Prices could correct, possibly abruptly and steeply, should Bernanke's speech again hint of distancing the Fed from further monetary policy easing," says James Steel, chief commodities analyst at HSBC.

"We see near-term risks of a reversal if Jackson Hole does not deliver what the market is hoping for," agrees Nick Trevethan, senior metals strategist at ANZ.

European Central Bank president Mario Draghi has cancelled his scheduled Jackson Hole appearance, citing a heavy workload. The ECB's Governing Council holds its monthly policy meeting next week, where it is expected to outline plans to stabilize the Euro, which could include intervention in sovereign debt markets.

In an interview published by Der Spiegel on Sunday, German Bundesbank president Jens Weidmann warned that "central bank financing can become addictive like a drug".

"The role the ECB appears ready to take on will overburden the central bank," added Juergen Stark, former ECB chief economist who resigned last year, in an opinion piece published by newspaper Handelsblatt Tuesday.

"[It] will allow its independence to be further eroded by politics...and ultimately, the central bank will no longer be able to fulfill its core task of delivering price stability. There is the risk of higher inflation – not today, not tomorrow, but in the medium- to long-term."

"It should be understood," counters Draghi in a piece published in Die Zeit today, "that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools...this may at times require exceptional measures."

Elsewhere in Europe, Catalonia has become the third Spanish region to ask Madrid for a bailout, saying it will ask for €5 billion. 

Earlier this week it was reported that the national government has agreed to regional spending plans that would see them exceed agreed budget deficits by up to 10%, according to the Financial Times. Spain's prime minister Mariano Rajoy however insisted Tuesday that his government is not negotiating a bailout.

Spanish banks saw private sector deposits fall at a record rate in July, according Bank of Spain figures published yesterday.

Here in the UK, Britain's richest people should pay an emergency tax to avoid a breakdown in social cohesion, according to deputy prime minister Nick Clegg, who leads junior coalition government partners the Liberal Democrats.

"If we are going to ask people for more sacrifices over a longer period of time...then we just have to make sure that people see it is being done as fairly and as progressively as possible," Clegg says in an interview with the Guardian Wednesday.

The volume of Gold Bullion held to back shares in the SPDR Gold Trust (GLD), the world's largest Gold ETF, rose to its highest level since March yesterday, hitting 1289.5 tonnes.

By contrast, the volume of Silver Bullion held by the world's biggest silver ETF, the iShares Silver Trust (SLV), fell slightly to 9763.5 tonnes.

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