Federal Reserve Chairman Ben Bernanke Thursday said falling gold prices may reflect less concern among investors about “extreme outcomes” for the economy.
“Gold is an unusual asset. It’s an asset that people hold as a sort of disaster insurance,” Mr. Bernanke said in response to a question at a Senate Banking Committee hearing.
Gold prices have dropped near three-year lows in recent weeks as the economy shows signs of improving and the Fed has clarified its plans to eventually roll back its bond-buying program.
Mr. Bernanke said those lower prices may reflect greater confidence about the economy and less concern that Fed programs will cause inflation to spike.
Still, the Fed chairman said gold isn’t such a great hedge against inflation. “Movements of gold prices don’t predict inflation very well,” he said.
Mr. Bernanke also offered a major caveat to his assertions about gold: “Nobody really understands gold prices and I don’t pretend to understand them either,” he said.
Bernanke Explains How Fed Views Inflation
There’s long been a gulf between how people view inflation and how central bankers take account of price pressures.
For most people, food and energy costs are among the most important, and most volatile, prices they confront on a daily basis. If those prices rise, that means inflation is on the march, regardless of the readings on the wide range of price data ginned up by government agencies monthly.
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