(Bloomberg) – U.S. Federal Reserve Chairman Ben S. Bernanke said gold prices, which surged to a record yesterday, are sending a different signal on inflation than raw materials.
“Other commodity prices have fallen recently quite severely, including oil prices and food prices,” Bernanke said today in response to a question during testimony to a House Budget Committee hearing. “So gold is out there doing something different from the rest of the commodity group.”
Gold futures for delivery in August fell $15.70, or 1.3 percent, to $1,229.90 an ounce on the Comex in New York today. Yesterday, the metal reached $1,254.50, an all-time high. The price climbed for nine straight years and is up 12 percent in 2010.
“Bernanke is dispelling the argument that people are out there buying gold because of the threat of inflation,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Deflation is now more of a threat.”
Consumer prices fell 0.1 percent in April, the first decrease since March 2009, according to figures from the Labor Department. In the 12 months ended April 30, the measure rose 2.2 percent following a 2.3 percent year-over-year gain in March.
Commodity Slump
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of raw materials including steel, cattle hides, tallow and burlap plunged 57 percent in May, the most since October 2008. Crude-oil futures have dropped 6.3 percent this year, and corn prices are down 18 percent.
Some investors buy gold to hedge against accelerating costs. This year, gold has rallied as Europe’s sovereign debt crisis spurred demand for an alternative currency. The euro is down 16 percent this year against the dollar.
“There is a great deal of uncertainty and anxiety in the 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 being risky and hard to predict at this point.”
Gold has outperformed stocks, bonds and other commodities this year.
“When there’s nowhere else to turn, people turn to gold,” Zeman said.
In testimony to the House committee, Bernanke said that the U.S. economic recovery, while being sustained by private demand, isn’t as strong as he prefers and faces risks from Europe’s debt crisis that may require further Fed action.
–With assistance from Scott Lanman and Joshua Zumbrun in Washington and Millie Munshi and Elizabeth Campbell in New York. Editors: Patrick McKiernan, Steve Stroth
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net

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