Ben Bernanke Tells U.S. Senate Gold Doesn’t Matter

Announcer:

Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.

Mike Gleason:

Welcome to this week's market wrap podcast, I'm Mike Gleason.

We're seeing some positive signs for precious metals prices this week, so let's get right to the market action. Gold and silver broke above resistance levels on Monday and are posting solid gains for the week.

Gold cleared the $1,300 level and rallied to as high as $1,350 an ounce before pulling back a bit. The yellow metal currently trades at $1,326 as it heads for its third consecutive weekly gain.

Turning to silver, it gained a dollar on Monday to break through the $20 barrier. Although prices briefly dipped below $20 on Thursday, buyers quickly emerged to push silver back above $20 at the close. As of this Friday morning broadcast, silver is still hovering right at the $20 mark and appears headed for a weekly gain of close to 4%.

It hasn't been as strong a week for the other white metals. Palladium is little changed for the week at $735 an ounce, though it does remain the only the precious metal that is in positive territory for the year – up a little over 7%. Palladium's sister metal platinum is down about 7% for the year for the year but positive for the week. Platinum comes in at $1,435 an ounce and maintains a premium of more than $100 to gold.

Gold prices had been up 12 calendar years in a row heading into 2013. It's not out of the question it could rally to again this year and post year-over-year gains. But as of now, the widely held perception among investors is that they don't need gold because the economy is stable and recovering, inflation is low, and the Fed won't allow another financial crisis happen. That's a perception the Federal Reserve has carefully crafted.

The reality is that the economy, the stock market, the bond market, and the government have become so addicted to the Fed's regular injections of monetary stimulus that the Fed can't embark on a return to normalcy. Doing so would usher in a full-blown disaster. We saw signs of the market revolting against Fed chairman Ben Bernanke's talk of "tapering," and he quickly reversed course. There will be no exit from Quantitative Easing, and even slight cutbacks in the amount of bond buying will be difficult to pull off.

What the Fed is doing is ultimately bullish for precious metals, even if Fed officials play dumb and pretend not to know anything about what drives gold prices. Bernanke was asked about gold in his testimony before the Senate Banking Committee last Thursday. His remarks certainly raised some eyebrows.

Ben Bernanke:

Gold is an unusual asset. It's an asset that people hold as disaster insurance. They want, or they feel if things go really badly wrong, at least they'll have some gold in their portfolio.

Question from Panel:

Is that an accurate feeling?

Ben Bernanke:

It's not all that accurate. For example, a lot of people hold gold as an inflation hedge but the movements of gold prices don't predict inflation very well actually, but anyway, the perception is that by holding gold you are having... you have a hard asset that you'll be protected... well it protects you in case of some kind of major problem. I think psychologically the gold price going down is not necessarily a bad thing from that perspective, it's just people have somewhat more confidence and are less concerned about really bad outcomes but let me just end by saying that nobody really understands gold prices and I don't pretend to really understand them either.

Mike Gleason:

It's no big mystery why gold prices today are over $1,300 per ounce instead of the $35 per ounce they were fixed at during the Great Depression. It's not because gold is so much more valuable. It's because the currency is so much less valuable!

Bernanke surely understands this. And he surely understands that even though gold prices may not reflect inflation rates in any given year, gold does in fact keep up with inflation over the decades. That's frankly why the U.S. government holds one of the world's largest stockpiles of gold. Gold serves as a store of value and as an indicator of when currencies lose value.

So when the Federal Reserve chairman talks down gold, that's really an admission that he does think it still matters and is concerned with preventing it from signaling unsoundness in the currency. Nobody wants the gold market to deliver the message that the Fed needs to pull back on its stimulus and tighten monetary policy. But the more they keep stimulating, the more certain it is that gold prices are headed higher in the long term.

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Well that will do it for this week's market wrap podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar... with speed, with accuracy and with top notch service. Have a great weekend everybody.

Announcer:

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