Bernanke Puzzled by Gold Rally

[MNeagle]

By Jon Hilsenrath

Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk.

In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.

http://blogs.wsj.com/economics/2010/06/09/bernanke-puzzled-by-gold-rally/

[gunDriller]

i'm not sure who did the paper, it may have been Bernanke.

one of the academic papers that came up in a recent interview was Bernanke's (or somebody's) paper about how suppressing the price of gold allows a central bank to keep interest rates artificially low.

i'm not kidding, because it sounds like i'm parodying what they are doing.

someone actually wrote a paper on that and i think it may have been Bernanke.

anybody else know who wrote a paper on that subject ?

[ximmy]

Bernanke: I don't know why the price of gold is up so high already... ???

[MNeagle]

Bernanke Says Gold, Commodities Conflict on Inflation

June 9 (Bloomberg) -- U.S. Federal Reserve Chairman Ben S. Bernanke said gold prices, which surged to a record yesterday, are sending a different signal on inflation than raw materials.

“Other commodity prices have fallen recently quite severely, including oil prices and food prices,” Bernanke said today in response to a question during testimony to a House Budget Committee hearing. “So gold is out there doing something different from the rest of the commodity group.”

Gold futures for delivery in August fell $15.70, or 1.3 percent, to $1,229.90 an ounce on the Comex in New York today. Yesterday, the metal reached $1,254.50, an all-time high. The price climbed for nine straight years and is up 12 percent in 2010.

“Bernanke is dispelling the argument that people are out there buying gold because of the threat of inflation,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Deflation is now more of a threat.”

Consumer prices fell 0.1 percent in April, the first decrease since March 2009, according to figures from the Labor Department. In the 12 months ended April 30, the measure rose 2.2 percent following a 2.3 percent year-over-year gain in March.

Commodity Slump

The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of raw materials including steel, cattle hides, tallow and burlap plunged 57 percent in May, the most since October 2008. Crude-oil futures have dropped 6.3 percent this year, and corn prices are down 18 percent.

Some investors buy gold to hedge against accelerating costs. This year, gold has rallied as Europe’s sovereign debt crisis spurred demand for an alternative currency. The euro is down 16 percent this year against the dollar.

“There is a great deal of uncertainty and anxiety in the financial markets right now,” Bernanke said. “Some people believe that holding gold will be a hedge against the fact that they view many other investments being risky and hard to predict at this point.”

Gold has outperformed stocks, bonds and other commodities this year.

“When there’s nowhere else to turn, people turn to gold,” Zeman said.

In testimony to the House committee, Bernanke said that the U.S. economic recovery, while being sustained by private demand, isn’t as strong as he prefers and faces risks from Europe’s debt crisis that may require further Fed action.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiO1etyraiR8&pos=4

[Book]

http://in.reuters.com/resources/r/?m=02&d=20100603&t=2&i=119118481&w=460&fh=&fw=&ll=&pl=&r=img-2010-06-03T230312Z_01_NOOTR_RTRMDNC_0_India-490277-2

Yeah...who needs gold when Ben can just print all the money we need out of thin air?

:D

[Horn]

So another conundrum from the "chief financial officer" of the known world.

What else is new?

[Shami-Amourae]

He could always switch to using this:

http://www.aerospaceweb.org/question/helicopters/size/v12_01.jpg

[Saul Mine]

It is remarkable how stupid a man can be when his job depends on not understanding something.

[gunDriller]

can you imagine if he was actually honest.

"we've printed $2 Trillion recently and a few other Trillion covertly. we have official debt of $13 Trillion and additional liabilities of about $100 Trillion. there is no way we can meet those liabilities without printing more money. so we're basically doing a BIIIIIIIIIIIIIIG economic experiment to see what happens when you print that much money.

but those of us on the inside have covered our backsides and we all have a few $billion salted away. so we're quite prepared for a US currency devaluation of 90%."


i would have liked to see the congresscritter questioning Bernanke say something like, "i'm puzzled at your puzzlement".

then the situations becomes Theater of the Absurd (which is sort of already is) if Bernanke says, "i'm puzzled at your puzzlement at my puzzlement".

since Bernanke is sitting up there lying anyway, why not live a little, and do something bizarre ? ;D

[sirgonzo420]

can you imagine if he was actually honest.

"we've printed $2 Trillion recently and a few other Trillion covertly. we have official debt of $13 Trillion and additional liabilities of about $100 Trillion. there is no way we can meet those liabilities without printing more money. so we're basically doing a BIIIIIIIIIIIIIIG economic experiment to see what happens when you print that much money.

but those of us on the inside have covered our backsides and we all have a few $billion salted away. so we're quite prepared for a US currency devaluation of 90%."


i would have liked to see the congresscritter questioning Bernanke say something like, "i'm puzzled at your puzzlement".

then the situations becomes Theater of the Absurd (which is sort of already is) if Bernanke says, "i'm puzzled at your puzzlement at my puzzlement".

since Bernanke is sitting up there lying anyway, why not live a little, and do something bizarre ? ;D


ROFL!

I agree!

;D