Editor's Note: Watch Kitco Video News at the IPMI (International Precious Metals Institute) Conference Direct From Las Vegas June 9-12, 2012 (Kitco News) - Gold futures fell Thursday as the market was disappointed that congressional testimony from Federal Reserve Chairman Ben Bernanke did not hint more strongly at the chance for further loosening of monetary policy.

As of 11:15 a.m. EDT, gold for August delivery was $1,590.20 an ounce, or 2.8%, lower on the Comex division of the New York Mercantile Exchange. July silver followed, losing $1.108, or 3.76%, to $28.38 an ounce.

“We’ll see further what he has to say, but the only thing that has happened is he has given no clues for QE (quantitative easing),” said James Steel, analyst at HSBC.

Steel also stressed while Bernanke didn’t explicitly hint at more monetary stimulus, there is certainly no effort to reverse course on stimulus, either.

Bernanke told Congressional officials that the Fed stands ready to act to protect the financial system and the economy if the problems facing Europe grow. However the chairman reiterated what he said in his April testimony that U.S. economic growth will proceed at a moderate pace.

Gold’s immediate reaction was to tick higher when the market first saw headlines in which Bernanke said the Federal Reserve remains poised to act, said Dave Meger, director of metals trading with Vision Financial Markets. But the market then quickly reversed course as traders continued to parse Bernanke’s words and concluded he was not saying anything new, Meger continued.

“This is the same rhetoric we’ve been hearing for quite some time after almost every Fed meeting,” Meger said. “The market was looking for a more definitive stance on the possibility of lowering interest rates or some type of additional liquidity being added to the market. In our opinion, the Fed fell short of that, which is obviously disappointing to the gold market.”

Oscillating expectations for Fed policy have played a role in shifts in the gold market during recent months. The metal started the year strongly on ideas that the Federal Open Market Committee would undertake a third round of quantitative easing and the August gold contract hit a high for the year of $1,797.70 an ounce on Feb. 29. Then came a large downward correction as those accommodation hopes were quashed by subsequent Fed comments and three straight monthly U.S. non-farm payroll gains in excess of 200,000 jobs.

More recently, however, the monthly jobs report has been falling short of expectations, such as the anemic 69,000 rise in non-farm payrolls reported on Friday. As a result, gold surged in anticipation that the FOMC might undertake further accommodation after all.

Kevin Grady, founder of Phoenix Futures and Options LLC, said activity in the futures market was very heavy when Bernanke first spoke, saying within the first five minutes of his speech, nearly 20,000 contracts traded.

The Fed chairman seemed to acknowledge that the job market might be weak for a time, but indicated that policy-setters already have accommodative monetary policy. The financial system may have to get worse for the Fed to act, Meger said.

“He’s saying, ‘We’re already leaving rates low. We’re very accommodative right now,’” Meger said. “The gist that the market is taking is that right now, you’re not likely to get further stimulus.”

RALLY ON CHINESE RATE CUT NEWS WIPED OUT

Gold and other markets rallied earlier Thursday morning after a surprise interest rate cut by the People’s Bank of China. With Bernanke not offering any inkling of stimulus measures, the midday price reversal offset the gains seen on the China news, Steel said.

Some market watchers said given the surprise move by China, gold bulls might have hoped that Bernanke would tip his hand toward further stimulus in his testimony and perhaps signal the beginning of a coordinated global stimulus action. However, with Bernanke mum, cold water has been thrown on that idea, Grady said.

Grady added that judging by Thursday’s comments, the Fed is hoping the European Union will start to seriously tackle their economic crisis and that Asia will do more to shore up slowing economies so that the Fed won’t have act again.

“If stocks can stabilize and prices can stabilize and everything is in a holding pattern, even going sideways, I think they’ll think that’s fine,” Grady said.

Grady said the Fed likely wants to keep the option of something like a third round of quantitative easing as a “fail-safe option” if the U.S. economy turned south in a hurry.

Gold fell under $1,600 as the day wore on and the U.S. dollar pared some of its earlier losses following Bernanke’s comments. Recent dollar strength hampered gold earlier this year, although very recently gold has rallied, which made some market watchers wonder if gold is back to being a safe haven. Whether or not it is, Grady said one thing he would not do is sell gold at these levels.

“I wouldn’t want to be short gold during a currency crisis like we have now,” he said. By Allen Sykora and Debbie Carlson of Kitco News; asykora@kitco.com and dcarlson@kitco.com Follow us on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It's free, too. Our accounts are @dcarlsonkitco and @asykora <<Back to more Kitco exclusive news