The gold price opened higher, rising $4.72 to $1,098.39, as asset prices across the globe, including the price of gold, rose on waning concerns over the reconfirmation of Federal Reserve Chairman Ben Bernanke. Gold suffered its largest decline last week in over a month - under pressure from the U.S. dollar’s strength relative to the euro. The uncertain status of Bernanke’s reappointment to the position of Federal Reserve Chairman and concerns over tighter monetary policy in China contributed to selling in the gold sector and in global financial markets. Investors and traders liquidated assets on worries over both the uncertainty at the Federal Reserve as well as whether new Fed leadership would provide a similar headwind to asset prices that “Helicopter Ben” has consistently provided.

The ten-month rally in asset prices has been engineered with easy monetary policy, led by near zero interest rates and a ballooning $2.3 trillion balance sheet at the Federal Reserve. Worries over the removal of the chief engineer of these policies and initiatives sent the prices of stocks, commodities, emerging market currencies, gold bullion, and gold mining stocks lower over the course of the past week. Market action was somewhat reminiscent of fall of 2008 when the U.S. dollar rallied and virtually all asset classes with the exception of government debt declined. Bernanke - whose current term ends on January 31 - did receive strong support over the weekend from many high-ranking Senators. Judd Gregg (R - NH) and Christopher Dodd (D - CO) predicted in a joint statement that the Fed Chairman would be reappointed, while Senate Republican Leader Mitch McConnell (KY) stated on Meet the Press that Bernanke is “going to have bi-partisan support and I would anticipate he will be confirmed.”

The gold price - coming off a week in which it lost $37.54 per ounce - rallied on the Senators’ comments, as Bernanke’s unprecedented monetary policy initiatives have been one of the chief fundamental factors behind the bull market in the price of gold and gold mining stocks. Furthermore, recent comments from Bernanke that the Fed intends to keep interest rates near record lows for an “extended period of time” have lent further support as market participants have sought out assets such as gold bullion, which provide a hedge against the ongoing debasement of the U.S. dollar.

If Bernanke were to be ousted, it appears that Fed Vice Chairman Donald Kohn would likely replace him, at least on an interim basis. Mr. Kohn is a long-standing member of the Federal Reserve who has maintained a dovish view - similar to that of Alan Greenspan and Bernanke. As such, while the absence of Bernanke would likely call into question the future course of monetary policy, a fact that could provide a headwind for the gold price and gold mining stocks, Federal Reserve policies are likely to remain accommodative for the near future.

Over the next several days market participants will continue to focus on Chairman Bernanke and the Federal Reserve, as the Federal Open Market Committee (FOMC) meeting is held January 26 and 27. While numerous data points over the past several months have provided evidence of an economic recovery, the Fed has continued to maintain its easy monetary policies - thereby implicitly acknowledging just how crucial low interest rates and quantitative easing have been to the improvement of the global economy.

While various inflation hawks have urged the Fed to begin to withdraw stimulus and potentially even raise interest rates, Bernanke has steadfastly remained in the dovish camp. Although the Fed is expected to begin to remove several emergency lending programs and hold firm on its March deadline for purchasing $1.25 trillion in mortgage-backed securities, the likelihood of further tighter policies out of the Fed at this week’s meeting is expected to be remote.

Debate over the risks of inflation versus deflation will dominate the investment landscape over the course of 2010 and the implications will continue to impact the gold price and gold mining stocks. If inflation concerns escalate and induce the Fed to move more aggressively, the price of gold and gold mining stocks stand to suffer. However, if Chairman Bernanke is reconfirmed, the probability of deflation-fighting remaining the top priority of America’s central bank is high - the key tenet of the gold bull market.