A little more from his testimony. Bernanke also said that the gold price is not a good predictor of inflation. I’m not sure what he’s basing that on. It’s only been unpegged from the dollar for 40 years, and it did well in the ‘70s (a period of acknowledged inflation) and over the past 15 years (a period of multiple bubbles, high financial asset inflation, and significant money-printing).
But, when you marry that comment with the subject of my last post, his premise makes a bit more sense (at least, from the convenience it provides him). If, by seeming stipulation, gold doesn’t track inflation well, it would also imply that it does not tell us much about deflation either. Therefore, by process of elimination, a lower gold price can only mean one thing – less fear. And at a moment where it is critical to control the narrative and maintain the confidence level, who wants to imagine that the other possibility of a lower gold price is a deflationary crash?
Anyway, whatever the motives, I think the Fed is hoping for an outcome without any idea of whether it will come.
