Chairman Bernanke and Congressman Ron Paul Spar Again

When Bernanke speaks... markets move. Yesterday FOMC minutes were released that contained chatter of further stimulus through a form of QE3 or extension of QE2. This would potentially be implemented if, the unemployment mandate of 8.8% or below is not achieved, relatively low CPI numbers, slow growth in the second half or rising yields going forward (time frames were, of course, not provided). Currently we are seeing a slowdown in growth, 9.2% unemployment and low CPI figures.

Bernanke was roasted over the partisan coals this morning in Washington D.C. When it was Congressman Ron Paul's turn to question the chairman, of course the topic of gold came up, considering Bernanke has supported the price of gold for nearly five years now with his loose monetary policy.

After injecting gold into the, somewhat predictable, discourse Congressman Paul asked for Bernanke's explanation on why central banks hold gold as reserves.

Congressman Paul - "Why do central banks hold it (gold)?"

Chairman Bernanke - "Well its a form of reserves."

Paul - "Why don't they hold diamonds?"

Bernanke - "Well, its tradition, long term tradition."

Paul - "Some people think its money... I yield back, my time is up."

Clearly central banks do not hold gold merely out of tradition.

Well, today when Bernanke spoke, I felt the same way as when I read the highlights of the FOMC minutes yesterday, it is clear to me the Fed has no plans and are just now debating an exit strategy to normalize their balance sheet over a 2-3 year period after implementation, which could be years from now.

Silver was up over 5% on the day, while gold reached new all a new all time high. Most attractive mining shares that sold off big are bottoming out or have already started a reversal. Moody's reviewing Italy debt downgrade, today Moody's placed a review on US debt. Volatility has crept back into the market, and it is welcomed by may traders.