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Bernanke Puzzled by Gold Rally

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June 10, 2010 – Comments (7) | RELATED TICKERS: LO , L

LOL!!! This is hilarious. Everybody, including the Chairman of the Federal Reserve, seems to be clueless / under the incorrect assumption that gold is mainly or only an inflation hedge. As I and many others have belabored repeatedly that is not gold's main function. Like I point out here: Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years) - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=402614:

"We must first disabuse anybody of the incorrect assumption that gold is an "Inflation" hedge... period. I have said this many times in the past, that gold is not only a hedge against inflation, but (and more importantly) it is a hedge against financial shenanigans and economic instability (loss of confidence).

There is absolutely nothing in economics that has only one cause and one effect. There are primary causes and secondary causes (and always multiple ones), and the primary cause at one time might become a secondary cause at a later time!!

"Gold is only a hedge against inflation". First this is an incomplete statement because it does not distinguish between monetary inflation and price inflation (most people are not even aware of the difference). And gold is a hedge against inflation (first and foremost it is a hedge against monetary inflation and is one of the few asset classes to respond to it early and directly. Moreover, all monetary measures are *NOT* created equal and you must use the proper, and in fact clearer/simpler form of money measurement, to understand monetary inflation, which is the True Money Supply / TMS - see: Steve Saville: Thoughts on Monetary Inflation. M2 and M3 have *non-monetary* components and are invalid for understanding the true scope of monetary inflation/deflation) and it is also, perhaps more importantly, a hedge against financial instability / loss of confidence.

It the 1980s, we had massive inflation. However gold dropped. So there is a contradiction right there. Why? Because Volcker's policies returned confidence back to the financial markets. And the future outlook, even though it was inflationary at the time, was deemed to be bright enough that people poured back into equities and left the safety of gold. (An example of a primary cause and a secondary cause switching importance)."

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Bernanke Puzzled by Gold Rally
By Jon Hilsenrath

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

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. [My comment: Dude, buy a fu**ing clue]

In this case, it might instead be a risk against risk broadly.[My comment: Ding, Ding, Ding!! Give the man a cigar!! Gold is a hedge against economic instability / loss of confidence / financial shenanigans. As faith in fiat currencies, especially the US dollar weakens due to so much monetary manipulation, confidence in gold will increase] 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.

Bernanke also defended the stimulus in his cautious testimony as a temporary measure to boost the economy, but warned of continuing deficits.

7 Comments – Post Your Own

#1) On June 10, 2010 at 1:35 PM, rofgile (99.33) wrote:

Bernanke did make a good point- that the price movements in gold are not being seen in other commodities.  Gold's prices being high are particular to gold, not reflective of global price increases due to loss of dollar strength.

Gold's price is high because everyone is saying BUY BUY BUY - GoldLine, TMFSinch, Binve, Time Magazine, etc.

-Rof 

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#2) On June 10, 2010 at 1:46 PM, binve (< 20) wrote:

rofgile,

>>Gold's price is high because everyone is saying BUY BUY BUY - GoldLine, TMFSinch, Binve, Time Magazine, etc.

No. I do not tell anybody to buy anything. I do not give any advice.

I give my thoughts on why I buy, and why I think gold makes sense in this environment. Hopefully the sharing of my thought process is useful. That is why I post.

I don't post to have people follow me. And I don't care if you use my work constructively, or if you use me as a contrarian indicator..

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#3) On June 10, 2010 at 1:59 PM, portefeuille (99.43) wrote:

And I don't care if you use my work constructively, or if you use me as a contrarian indicator..

I can't use binve as a contra-indicator as long as he keeps his "outperform" call on ATPG shares. Maybe he is not always wrong (just kidding) ...

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#4) On June 10, 2010 at 11:54 PM, Tastylunch (29.54) wrote:

Binve buddy

Why did Goodvibe close his site?

http://www.iamgv.com/gv/2010/06/so-long-thanks-for-linking.html

Just curious if you knew.

Sometimes I can't figure that dude out. :)

Anyway hope he's well.

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#5) On June 11, 2010 at 8:29 AM, binve (< 20) wrote:

Tastylunch ,

Hey man!

>>Why did Goodvibe close his site?

I really don't :(

>>Anyway hope he's well.

Me too!..

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#6) On June 11, 2010 at 4:34 PM, rfaramir (29.63) wrote:

“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted

 

If he had stopped there, he'd've been a lot better off. Well, maybe after adding this, too:

 

Bernanke ... warned of continuing deficits

 

But generally, he's on the wrong side of things.  Makes sense, since he is head of the institution whose purpose is to steal our wealth through inflation.  End the Fed. 

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#7) On June 16, 2010 at 4:14 AM, cashkid79 (94.28) wrote:

Haha, I didn't realize people actually used other players for contrarian indicators...so, ummm -- where's my check, haha ...

 

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