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Gold Adds 0.5% as Paulson, Bernanke Get a "Bazooka, Not a Squirt Gun" to Save Mortgage Lenders

From Chris Mullen at

Gold and silver remained near unchanged in Asia on Tuesday, rose roughly 1% in London, and climbed to as high as $988.17 and $19.45 early in New York.

The Dow, Nasdaq and S&P dropped markedly at the open on more worries about the economy and health of the financial system overall.

All three indices rebounded to find marginal gains as oil dropped over $9 at one point and traders digested congressional testimony (see below). Both metals then fell sharply in late morning trade, and dropped to $968.35 and $18.522 by a little before noon.

Gold Prices then rebounded in the last two hours of trade, and gold ended with a gain of 0.49% while silver ended with a loss of 0.73% – not too shabby considering that the dollar ended well off its lows and oil experienced its biggest one-day Dollar drop since 1991.

Stocks fell back off by the close and only the Nasdaq was able to end with a gain ahead of Intel’s earnings after the bell. The Dow closed under 11,000 for the first time in over two years.

The Gold Price in Euros rose over €613, platinum lost $42.50 to $1974.50, and copper fell roughly 5 cents to about $3.72.

Gold and silver equities rose over 2% at the open and fell over 3% by late morning before they traded roughly 2% lower for the rest of the day.

Oil fell as much as $9.26 in late morning trade and ended over 4% lower on an acceleration of liquidation of positions on margin calls and worries that a severe economic downturn will cut into demand. Bernanke was given the chance by several senators to blame speculators for the recent price run-up and instead pointed to market fundamentals in his testimony today.

Treasuries rose on the short end after Fed chairman Ben Bernanke said there are "significant downside risks" to economic growth, but gains were limited as Producer Price Inflation came in higher than expected at the highest year over year rate since 1981 and at least pushed rates on the long bond higher.

Bernanke spoke before the US Senate Banking Committee about returning stability to the financial markets while also expressing worries over growth and inflation.

Fellow policy-makers Hank Paulson of the Treasury and SEC chairman Christopher Cox joined the panel in early afternoon trade and revealed limits on short sales of Fannie Mae and Freddie Mac.

The emergency order is aimed at preventing naked short sales in the primary dealers by implementing new rules (or actually enforcing current rules) covering the practice.

Other than some pointed questions from Senator Jim Bunning, the banking committee gave little real opposition to the wishes of Bernanke, Paulson, and Cox and will likely give them the blank check or "bazooka" they say they need to save Freddie and Fannie, rather than just a "squirt gun" as Paulson put it at one point.

Senator Jim Bunning pointed out that seldom if ever has there been power granted and not later used no matter how much it was argued at the time that it hopefully would not need to be used in the future. The Fed, Treasury and SEC are essentially asking for unlimited funding and power from Congress to do whatever they want to save their banking buddies no matter what the consequence for the average American taxpayer.

After falling on economic worries – and with the Euro rising to a new record high in early trade – the US Dollar index ended well off its lows with only a minor loss as lower oil and speculation Paulson may get another "bazooka" to blast the forex market encouraged some short covering.

Wednesday at 13:30 GMT brings Consumer Price Inflation for June, expected at 0.7%, plus Core CPI – expected at 0.2%. At 14:00 GMT comes the Net Foreign Purchases of US securities report for May, expected at $65.0 billion, and at 14:15 is Capacity Utilization (expected at 79.4%) and Industrial Production (expected flat).

Finally at 19:00 GMT is the release of minutes from the Federal Reserve's latest interest-rate meeting of June 25th meeting.

Among the big names making news in the market today were Volkswagen, GM, Fannie Mae and Freddie Mac, U.S. Bancorp, and J&J.

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Chris Mullen is chief content manager of the GoldSeek family of websites, a leading source of gold news, comment and mining-stock data for private and institutional investors.

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