June 9, 2010 / 4:39 PM / 8 years ago

Bernanke: Gold sends different signal on inflation

NEW YORK/WASHINGTON (Reuters) - Gold’s response to inflation is different when compared with other assets and commodities, U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday.

“The signal that gold is sending is in some ways very different from what other asset prices are sending,” said Bernanke at a Wednesday U.S. House of Representatives Budget Committee hearing when asked about inflation.

Gold prices hit an all-time high on Tuesday above $1,250 an ounce on fears that European credit contagion could lead to a double-dip recession. Year to date, the metal was up 12 percent.

“For example, the spread between nominal and inflation-indexed bonds, the break even, remains quite low, suggesting that markets expect about 2 percent inflation over the next 10 years,” he said.

Bernanke added that prices of commodities including oil and food have fallen quite severely recently. So, “gold is out there doing something different from the rest of the commodity group,” he said.

On Wednesday, the metal extended losses after Bernanke’s comments. Bullion was at $1,226 an ounce, down 0.6 percent for the day.

U.S. Consumer Price Index slipped 0.1 percent in April, and the closely watched core inflation rate had risen just 0.9 percent over the past 12 months, its smallest annual gain since 1966.

“I don’t fully understand the movements in the gold price, but I do think that there’s a great deal of uncertainty and anxiety in 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 as being risky and hard to predict at this point,” he added.

Reporting by Frank Tang in New York and Emily Kaiser in Washington; Editing by Lisa Shumaker

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