Ben Bernanke was born on December the 13th, 1953 in Augusta, Georgia. He received his Ph.D. in economics from MIT in 1979. He worked in academia for many years, but later started his public service. In 2002-2005, he was a member of the Board of Governors of the Fed. In 2005-2006, he was a chairman of President George W. Bush’s Council of Economic Advisers. In February 2006, he became the Fed Chair, after being nominated by President Bush. During his tenure, Bernanke was responsible for the Fed’s response to the 2007-2008 financial crisis and the subsequent Great Recession. He was later nominated by President Obama for a second term from 2010 to 2014 when Janet Yellen succeeded him as the Fed Chair.
Bernanke and Gold
What was the Bernanke’s impact on gold? Well, it was quite positive, as gold gained about 134 percent under his tenure, as one can see in the chart below.
Chart 1: Gold prices (London P.M. Fix, in $, monthly averages) under Bernanke’s Fed tenure.
What were the reasons behind such a rise? Well, in 2008 the Lehman Brothers collapsed, triggering the financial crisis. The price of gold initially declined, as investors liquidated their gold holdings to raise some cash. However, after a while, gold started to soar due to the increased safe-haven demand.
Bernanke helped to ignite the rally in gold, as he conducted unconventional monetary policy as a response to the crisis. In particular, he implemented ZIRP by slashing the federal funds rate to practically zero. Since it didn’t help to stimulate economy, Bernanke inaugurated the quantitative easing, ballooning the Fed’s balance sheet.
The first two rounds of these asset purchases programs were very positive for the precious metals market, as investors worried about the rise in the money supply and inflation. The price of gold almost reached $1,900. However, as the U.S. economy recovered and there was no inflation on the horizon, the price of gold entered a bear market in September 2011, just two months after the end of the QE2. The increased confidence in the Fed and the U.S. economy reduced risk premium and the bidding for tail risk insurance. Consequently, the stock market rose, while the price of gold declined.
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