Delivering the Fed’s semiannual report on the economy to Congress, Bernanke made clear the central bank was worried a deepening housing slump, softening jobs market and tighter credit could dim an already bleak economic outlook.

“It is important to recognize that downside risks to growth remain,” Bernanke told the House of Representatives’ Financial Services Committee.

He also implied that The Fed has not anticipated the level of inflation in energy and hard asset prices. So much for forecasting. But Bernanke acknowledged it’ll be “hard to maintain low inflation” if prices keep doing what they’re doing.

The US dollar fell following his remarks. More and more, investors are seeing it as a low-yielding asset. The Greenback is currently trading around 1.5120 against the Euro, and around 0.9415 against the Australian Dollar.

The weak US Dollar performance pushed oil, silver and gold to new highs. The Nymex Gold futures contract for April delivery hit a new high of $967.70 an ounce during the trading session, and closed at $961.

The Silver contract closed at $19.40 yesterday, a new high in the rally begun last December.

The recent acceleration in the gold price is not solely explained by traditional long-term investors though. People aren’t just turning to hard assets to hedge their portfolios and to protect themselves against eroding purchasing power. There is more than that.

In fact, the big players have taken a dip in the pool of fear. Recent turmoil in stocks and the economic uncertainty have scared hedge funds and proprietary traders.

These big-time traders are evacuating risky assets, now that subprime and the credit crunch has taken hold. The gold market beckons. Hedge funds have extended the bullish gold trend, pushing the market up further as they evacuate stocks.

This accelerated action leads us to one conclusion… gold and silver markets will become more technical. Charting will be important. Traders will pay more attention to their exit and entry positions. It’s now a market in momentum, and the momentum at this stage is upwards.

Until now profit taking has been moderate, but the story may change quickly.

Firstly, history shows that when the economy switches from slow growth to negative growth, even commodities prices eventually ease.

The main short-term concern is traders and funds liquidating their bets. Silver and gold prices are now moving into unknown territories, with higher volatility. Moreover, for both assets, strong psychological levels ($1,000 for the gold price and $20 for the silver price) are just ahead. It means that we could see a potential pullback.

But after that… the sky’s the limit. After a few weeks of technical resistance and profit-taking, further news regarding the economic outlook may urge funds and speculators to take another dip, building new momentum in the gold price and silver price.

Gabriel Andre
The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Australia also faced a real bill much greater than the $2.2billion in military spending reported last week by Australian Defence Force chief Angus Houston, Professor Stiglitz said, pointing to higher oil prices and other indirect costs of the wars.

Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen.

“The dollar fell to a three-week low against the euro as US home prices tumbled and consumer confidence sank to a five-year low,” reports Bloomberg.

According to the report, the greenback dropped to $1.4882 per euro at 11 a.m. in New York, from $1.4830 yesterday.

The euro was supported by a boost in German business confidence, reports the Financial Times.

February’s Ifo business climate index, which measures industry and trade confidence, rose to 104.1 from 103.4.