Gold tumbled as Fed Chairman Ben Bernanke downplayed the possibility of QE3. The benchmark Comex gold contract slumped more than $100 to a 1-month low of 1688.4 before settling at 1711.3, down -4.31%. In Asian session today, the contact rebounded to above 1720, signaling that the plunged yesterday was overextended. Besides Bernanke's testimony, another focus was ECB's allotment of 3-year LTRO. The ECB has allotted 529.5B euro of 3-year LTRO to 800 banks. It's expected that no further allotment after this round unless the market situation deteriorates dramatically.
In Fed Chairman Ben Bernanke's testimony Semi-Annual Monetary Policy Report, he stated that 'pace of the expansion has been uneven and modest by historical standard'. Yet, growth in the coming quarters is likely to be 'at a pace close to or somewhat above the pace that was registered during the second half of last year'. He also acknowledged positive developments in the job market including job gains that were 'relatively widespread across industries' and the 'more rapid than expected' decline in the unemployment rate over the past year. Concerning monetary policy, Bernanke briefly reviewed past FOMC actions and added that the 'statement does not imply a change in how the Committee conducts policy'. He also noted that the 'Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives' of the Fed's dual mandate. Investors were disappointed by the Chairman as he did not signaled further QE3. Instead, the acknowledgement of improvement in economic outlook might imply that the chance of such as quantitative easing has lowered. This was the major reason for gold's slump yesterday.
In European session yesterday, the ECB announced allotment of 529.5B euro of 3-year LTRO to 800 banks. Together with the first auction, the central bank has injected 1trillion of 3-year funds into the system. This amount equals to 131% total European bank bond maturities in 2012 and 72% for 2012 and 2013 combined. The average allotment is 0.66B euro, compared with 1B euro in December 2011 and 0.40B euro in June 2009. The total number of bidders is huge, suggesting participation of a lot of small banks. The ECB would probably view the result as positive as it's expected that the funds will be passed to the real economy. As the actual amount allotted is inline with consensus, market reaction was rather muted.
On the dataflow, initial jobless claims in the US probably slid -2K to 349K in the week ended February 25. Growth in construction spending might have eased to +1.0% in January from +1.5% a month ago. ISM manufacturing index is expected to have edged high to 54.6 in February from 55.5 in the prior month.