Silver spot price higher as Yellen backs QE

Fed Chair-in-waiting: Gold valuable in times of tail-risks

Silver spot price higher as Yellen backs QE, Thursday 14 November:

Janet Yellen has today appeared before the US Senate Banking Committee as President Obama’s nomination for the next chair of the Federal Reserve. In remarks to the committee, Yellen expressed the view that the benefits of quantitative easing exceed the costs, sparking a sharp uptick in spot silver to a two-day high at 20.883. The precious metal had earlier dropped to a 14-week low of 20.418 with the most recent US data increasing the odds of early QE tapering.

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At the confirmation hearing for the hot seat in US monetary policy, Janet Yellen stressed that the US central bank will normalise policy “when the time is appropriate”, stressing that the Fed must not remove support while the economic recovery remained fragile. Asked directly when QE might end, Yellen said “there is no set time” when the FOMC will reduce the pace of bond-buying.

The current Fed deputy chair recognized that there are dangers in trimming the pace of asset purchases too early as well as in an inordinate persistence with stimulus. She considered it “imperative” that US policymakers do everything they can to “continue promoting a robust economic recovery”.

Yellen stressed that the magnitude of long-term unemployment in the United States is “virtually unprecedented” and assured the markets that the Fed will remain accommodative after bond-buying ends.

The West Coast academic economist recognized that the Fed takes very seriously the risks with QE because “the longer this program continues, the more we will need to worry about those risks”. She acknowledged academic disagreement over the effectiveness of QE but her personal view remains that there has been a “meaningful contribution” from asset purchases.

Yellen expects the economy to pick up in 2014 with an easing of fiscal drag. She stressed her strong commitment to the central bank’s dual mandate of maximum employment and price stability.

Asked about the price of gold, the Fed chair-in-waiting said no-one really understands the metal’s daily and weekly fluctuations but she acknowledged the asset’s merits in turbulent times and attendant escalation of tail-risk to the global economy.

Precious metal rallies “based on Fed speeches usually last a really, really long time”, Joshua Brown, an NYC-based financial advisor at Ritholtz Wealth Management, warned bears today.

Right now, silver is trading at around 20.831, up 0.51 percent intraday.

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