Ben Bernanke does not control the gold price: World Gold Council

The World Gold Council has spoken: Stop holding your breath at every word out of Ben Bernanke’s mouth.

In a research paper titled “Gold and the US interest rates: a reality check” the organisation warns against putting too much weight on the US Federal Reserve’s hints that it may or may not wind down QE.

“While negative interest rates support gold investment demand and rising rates increase the cost of investing in it,” the report reads. “A normal rate environment – with real interest rates ranging between 0% and 4% or approximately 2.5% to 6.5% in nominal terms – is not automatically adverse to gold. In such a rate environment, gold’s inclusion in a portfolio has historically been beneficial to investors.”

Just last month the precious metal dropped to September 2010 levels after Ben Bernanke, soon-to-be-former chairman of the Federal Reserve, said that he had a “moderately optimistic forecast” for the US economy.

Most recently Bernanke answered a US senator’s question about the gold price with:

“Nobody understands gold prices and I don’t really pretend to understand them either.”

In fact, the impact of US monetary policy on the gold price has gone down, the WGC says. With markets booming beyond American borders the WGC emphasizes that “gold is not solely tied to US sentiment and behavior.”

Emerging markets make up nearly 70% of world-wide physical gold demand (including ETFS), while the US represents less than 10%.

Gold investments have been historically quite positive, the WGC claims, with long-term average annual returns of 6-7%.

Putting too much emphasis on the US interest rates “oversimplifies the issues currently at play,” said Juan Carlos Artigas, head of investment research at the Council.

“In the event of a return to a more normalised real rate environment in the US it is worth remembering  that investment demand is not the only arbiter of gold prices, nor does it originate solely in the US,” said Artigas, citing the Chinese market where gold consumption jumped by 132% between 2007 and 2012.

“Even with the highest rate of interest, the core value of gold is to balance out a portfolio,” says Artigas. “Most investors are under allocated; optimal levels are identified as between 2% and 10%.”

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