Gold and Inflation

Federal Reserve Chair Ben Bernanke last week dismissed the suggestion that the recent surge in gold prices signals some kind of inflationary pressures:

So gold is out there, doing something different from the rest of the commodity group. I don’t fully understand the movements in the gold price, but I do think that there is a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.

I think Bernanke has this exactly right.



During the last two months, gold prices have surged while prices of most other commodities fell like a rock.








At the same time, we’ve seen yields on 10-year U.S. Treasuries coming down impressively as well.


Source: FRED

But those lower interest rates have brought no cheer to equity markets.



There’s a common thread to all the above figures, and it’s not fears about inflation. Instead it’s worries about the level of real economic activity, showing up in a flight to safety. U.S. Treasuries remain the instrument of choice for investors who think nothing looks safe.

But with the long-run fiscal challenges facing the United States, are 10-year Treasuries really the safest place to put your money? The yellow metal seems to be one way some people are hedging that bet.


Originally published at Econbrowser and reproduced here with the author’s permission.