Stock markets rise on hopes of more US Fed stimulus

 
Ben Bernanke US Federal Reserve chairman, Ben Bernanke, is thought to be pondering more quantitative easing

Stock markets and gold prices have risen, while the dollar has fallen, as markets expect further stimulus measures by the US Federal Reserve.

Markets on Wall Street closed strongly, with the Dow Jones ahead by 3%, and the S&P and Nasdaq also rebounding.

It came after European markets closed up 0.7% to 1.1%, and gold had hit a new record earlier in the day.

The Fed's chairman, Ben Bernanke, is widely expected to discuss further stimulus actions in a speech on Friday.

This may involve more "quantitative easing" - buying up US debt to inject more cash into the financial system.

The Fed has already carried out two rounds of quantitative easing (QE), to stabilise the 2008-09 financial crisis, and more recently to boost the flagging recovery.

Earlier this month, the US central bank also took the unusual step of saying that it expected to keep short-term interest rates close to zero until 2013.

On Friday, Mr Bernanke will give the keynote speech at the annual meeting of central bankers at Jackson Hole in Wyoming.

The second round of QE and the interest rate commitment were hinted at by Mr Bernanke when he spoke at the same event last year.

Anticipation in the US of a fresh monetary offensive from Mr Bernanke, saw the S&P index close up by 3.4%, and the tech-based Nasdaq finish ahead by 4.3%.

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The price of gold briefly rose above $1,900 an ounce for the first time during Asian trading hours, setting a new all-time high of $1,913.50.

Gold, which is viewed by investors as a haven investment, has been boosted both by anticipation of QE - which is expected to erode the value of the dollar - as well as recent signs of weakness in the US and European economies.

"If they push through with more stimulus, gold could rise even further," said Colin Whitehead of Fat Prophets.

He explained that a fresh stimulus package would mean that the US would have to print more money to boost liquidity in the markets, which in turn could see the US currency weaken further.

"The underlying driver of gold prices is the depreciating US dollar value," he said, "so the more money they print, the stronger gold gets."

However, following the open in Europe stocks rallied strongly, while the gold price fell back somewhat, with the London morning price fixing at $1,886.50 an ounce.

In New York the spot price of gold had fallen to $1,833.50 in late trade.

Gold bars Demand for traditional haven assets such as gold rises during times of economic uncertainty

Analysts say that the previous round of QE boosted share prices, as investors sought to reinvest the cash received in return for debts sold to the Fed.

Meanwhile, the dollar fell against most currencies in Tuesday morning trading.

The euro rose 0.58% against the dollar, to $1.4441, although some of the gains were due to industry surveys that revealed that eurozone manufacturing and services were not performing as badly as expected.

Libya uncertainty

Meanwhile, oil prices also rose in Tuesday morning trading, because of continued fighting in Libya and expectations that official figures will show a decline in US crude stockpiles.

Brent crude rose 95 cents to $109.31 a barrel, while US crude rose $1.02 to settle at $85.44 a barrel.

"It could take months before oil can start to flow again from Libya," said John Vautrain, oil analyst at energy consulting firm Purvin & Gurtz.

"I think there was a lot of euphoria on Monday. But the whole country is not completely pacified yet and we don't have an organised government. A lot is lacking."

 

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  • rate this
    +6

    Comment number 59.

    Printing money and subsequent higher inflation is just a sly way of cutting people's income. Four years of five percent inflation and your wages buy twenty odd percent less than they did. Can you imagine the reaction if the government told everyone to take a fifth pay cut, we'd have even more rioting.

  • rate this
    +6

    Comment number 58.

    I watched some interesting videos a while ago about growth and economics and found that "growth" as we know it is not really viable for the long term. Google for "the most important video you'll ever see".
    They are by professor Emeritus of Physics at Univ of Colorado-Boulder, and make logical sense. Unfettered growth is not possible in a finite world, hmm there may be trouble ahead! :)

  • rate this
    0

    Comment number 57.

    40.stan howard

    its called wealth preservation maybe you should do some reading.

  • rate this
    -4

    Comment number 56.

    The West has been living beyond it's means for decades and now it is time to pay the piper. What we could afford 30 years ago we can no longer have (free healthcare, welfare, state pensions) and the until the population of the west realises that you will all be condemned to years of poverty

    The West is not insulated from economic collapse - but the way you lot moan, you'd think you were

  • rate this
    +10

    Comment number 55.

    QE underpins asset values for those lucky enough to own them, the rich and the banks in other words, but at the cost of burying the rest of us plus future generations under a rising tide of inflation.
    QE isn't a 'get out of jail free card', it is the permanent transfer of wealth from the poor to the rich. The longer it goes on the heavier the damage will be, the cure will kill the patient.

  • rate this
    +7

    Comment number 54.

    With QE more money is given to banks to "stimulate the economy" but
    actually they use the money to buy shares, so the stock market will go up and up again just like it did the last time. It is just us that will get poorer as the cost of everything will rise, food and fuel not just gold.

  • rate this
    +3

    Comment number 53.

    43.stan howard

    There is only one person who could honestly defend Gordon Brown and that is Gordon Brown. Stan, are you really Gordon Brown?

  • rate this
    +3

    Comment number 52.

    36.bigden136

    i've said it before and i will say it again, which people NEVER change in the public sector? the workers and the management. YES the ministers are their to oversee them and spot the issues and overspending but they are too busy gorging themselves on 15k wines..

    i have seen someone STEAL 5,000 on a government procurement card, what did they get? yup sacked with a reference...

  • rate this
    +4

    Comment number 51.

    Is there really anyone out there who believes that basing economies on people sitting around and gambling on shares etc is a genuinely sensible way to run said economies?

    Or that there is no alternative?

  • rate this
    0

    Comment number 50.

    31.stan howard

    'schools are a better investment - gordon the munificent'

    Stan, Browns biggest fan. How many schools does £14bn plus get you?

  • rate this
    +2

    Comment number 49.

    19 The dogma of the left never ceases to amaze me. Well keep your head stuck in the sand if you want, the bill for Blair/Brown's 13 ruinous years has to be paid regardless. And you'll be the one paying it!

  • rate this
    +5

    Comment number 48.

    I am a patriotic UK citizen, opposed to uncontrolled immigration, but I have to ask why is the government willing to wipe £3.8 BILLION from our income by throwing out international students? It is total madness. They come into the country with money, they claim no benefits, they pay very high college fees.
    Why destroy all of this just to (falsely) reduce immigration figures. CRAZY CRAZY CRAZY.

  • rate this
    +2

    Comment number 47.

    why are people still bickering over which governments fault it is?
    The real traitors to this country (and all the others) are the banks and the bankers who followed orders.

    Break them up or make the banking parts not for profit...

    come on people at least get pissed off at the right crooks on this one...

  • rate this
    +4

    Comment number 46.

    30.Other Colours

    problem is i dont think rates will increase more than 0.25 in a year and its not enough to keep up with any effects of QE. People need to realise we are being set up for pain.

    We cant offerd the hikes needed as mortgage borrowers and we have no say over QE. We are the subjects now of simple market forces and the good old boys are wielding swords with no hilts.

  • rate this
    +20

    Comment number 45.

    More QE, it is pretty desperate stuff now.

    I would not mind it so much it it were not a dead end. If it were used as a stop gap while a new economic model is implemented it would make sense. But it is being used as a stop gap awaiting for that genie called 'growth' to appear again.

    It will not, it can not, the current model condems millions to unecesarry poverty and joblessness.

  • rate this
    +3

    Comment number 44.

    On the subject of gold and its worth ,it was interesting to see Venezuela nationalising its Gold mining and also wanting the return of stocks held overseas.
    If other countries follow suit i predict Gold prices to sky rocket as the whole metals market has been leveraged to the same extent as the property market was, if not more.

    I have doubts whether the gold will be returned to its owners

  • rate this
    0

    Comment number 43.

    pete27
    you are talking about a decision 10 years ago or more.
    gordon brown the builder of new scghools and hospitals - a real sound investment - gordon the munificent.

  • rate this
    +9

    Comment number 42.

    25.therestherub

    Im not crying for the banks after having worked for one. Their practices are disgusting and the way they discriminate between rich and poor (i.e. bank charges) is inhumane.

    Good ridance to the corrupt, greed infested and speculative fiqat money world. Maybe thos at the top who loose jobs will now get a real job and be a benefit to society and pay into a system they robbed

  • rate this
    +10

    Comment number 41.

    Ron Paul says audit the federal reserve, that would be a good start.
    The problem the world is facing is that this financial ponzie scheme is going to collapse at some stage. Banks are now bigger than countries, being proped up on debt, "too big to fail" is the catch phrase, yet peoples hard-earned money is becoming worthless.
    Banks have steered economies onto the rocks, why?
    Audit the Fed.

  • rate this
    +3

    Comment number 40.

    28
    all the so called fools are buying gold and silver.

 

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