The escalating European debt crisis posed significant risks to the US financial system and economic recovery, US Federal Reserve Chairman Ben Bernanke warned Thursday.

US economic growth had continued at a moderate rate so far this year, and the nation's labor market conditions improved in the latter part of Y 2011 and earlier this year, Mr. Bernanke said in his testimony before the Joint Economic Committee of US Congress.

US economic growth appeared poised to continue at a moderate pace over coming Quarters, supported in part by accommodative monetary policy, he said.

The central bank chief said concerns about sovereign debt and the health of banks in a number of Eurozone countries continue to create strains in Global financial markets.

The crisis in Europe has affected the US economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring US financial markets and institutions, Mr. Bernanke said.

European policymakers had taken a number of actions to address the crisis, but more would likely be needed to stabilize Eurozone banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area, and lay the foundations for long-term economic growth, he said.

On top of the Eurozone debt crisis, some domestic factors that had restrained the recovery still persisted, Mr. Bernanke said.

US households and businesses still appear very cautious about the economy. Concerns about developments in US fiscal policy and the strength and sustainability of the recovery had left some firms hesitant to expand capacity. The depressed housing market had also been an important drag on the recovery, he said.

Despite historically low mortgage rates and high levels of home affordability, many prospective home buyers could not obtain mortgages, as lending standards had tightened and the creditworthiness of many potential borrowers had been impaired in the financial crisis, according to his written testimony.

Inflation in the United States is expected to remain at or slightly below the 2% rate that the Federal Open Market Committee (FOMC), the Fed's interest rate setting panel, judges consistent with its statutory mandate to foster maximum employment and stable prices.

Bernanke stampedes Gold Bulls

US Gold futures prices extend losses in late-morning trading Thursday, and have dropped below the psych support mark at 1,600.00.

The precious Yellow metal has dropped sharply after US Fed Chair Ben Bernanke's speech to the Joint Economic Committee of the US Congress.

Mr. Bernanke said the US is facing economic headwinds, especially due to the EU debt crisis, but offered nothing specific on any new stimulus package to promote more economic growth in the nation.

Chairman Bernanke's restrained speech disappointed Gold Bulls who wished for immediate gratification on economic stimulus.

Mr. Bernanke did not surprise savvy market watchers, many of whom still see the Fed having to at some point soon, provide more monetary policy easing.

The Gold Bulls did lose their newfound upside near-term technical momentum on Thursday's sharp fall.

Aug Gold last traded down 44.00 at 1,589.00 oz.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.