I think that's crap. Take a look at gold:
Gold prices have moved through a triangle consolidation pattern and broken above previous resistance to establish record highs. This should tell us one very important point: investors are clearly very worried about inflation.
In addition, consider agricultural prices:
That's a three year price increase from 180 to over 400. That's called inflation.
And then there is this little fact from the latest inflation report:
US inflation for all of 2007 hit the highest rate for 17 years, as surging energy and food costs pushed up prices, official data has shown.
I think people are very worried about inflation; why else would they be bidding up gold?
4 comments:
They asked Bernanke for Gold and Oil prices, and he said - weeeeell is geopolitical ;)
The way I see it, investors bid up gold when they seek safety from uncertain economic conditions such as a recession or depression. This happens whether we're in an inflationary or deflationary enviroment.
I believe that once the fear diminishes and investors come to accept whatever is, then the other pressures on price take on stronger roles. That is, in a deflation, all asset prices (including gold) will tend to decline, and vice versa for an inflation.
That's why, IMHO, gold is so volatile and more or less unpredictable (despite what 'gold bugs' believe).
I think we need to look at the political aspects of Bernanke's comments. I think he's playing the same game Greenspan played of straddling the issue--we think that this bad thing will or will not happen. The last thing that Bernanke will want to say is that the crap has hit the fan here, even though the rest of us know, and are feeling, that the crap is hitting the fan. Also remember that this is 2008--a presidential election year. If Bernanke says that the U.S. is heading into an inflationary period, and a recession, then the market will realize that we're in potential stagflation period. This could cause all sorts of trouble in the financial markets (like there isn't any trouble in the financials), and the American publics' anger could be directed against the incompetence of this Bush administration and the Republican Party. So Bernanke may be playing a delaying PR-spin in trying to keep economists from saying that the U.S. is in a recession until after the 2008 elections.
They could solve the agriculture prices in one fell swoop: eliminate the absurd subsidies for ethanol and take the pressure off production of all other feed crops. Sheesh, it's like the Soviets deciding every farmer should work for the government.
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