Bernanke scoffs at gold price as inflation predictor

The gold price gained on Thursday, cutting some of its losses following testimony by the US Federal Reserve Chairman Ben Bernanke in front of the US Congress on Wednesday.

Gold futures were changing hands at $1,284.50 in late afternoon trade, up from the $1,277 close on Wednesday.

Earlier in the week gold failed to summit the crucial $1,300 an ounce level, but nevertheless climbed to a three-week high of $1,295.

On Thursday Bernanke spoke to members of the US Senate, directly addressing the gold price.

Bernanke, who is likely to step down as chairman when his contract expires in January next year, towards the end of the hearing said he "doesn't pretend to understand gold prices" and "nobody does".

The sell-off on precious metals markets this year has been mostly as a result of fears that ultra-loose monetary policy may come to an end sooner rather than later.

Bernanke said the decline in the price of gold could be because people have more confidence in the US economy.

An end to the  quantitative easing program would strengthen the dollar and tarnish gold's status as a storer of wealth.

The Fed is eager to throttle back asset purchases at the first signs of a solid economic recovery in the US or the emergence of inflation.

Bernanke said on Thursday it was "way too early" to make a call on winding down the $85 billion of asset purchases under the QE program.

Inflation has also remained subdued and Bernanke pooh-poohed the idea of a correlation between the gold price and inflation:

"A lot of people hold gold as an inflation hedge, but the movements of gold prices don't predict inflation well."