FOCUS: Bernanke: Gold Price Decline Suggests Less Worry About 'Extreme Outcomes'

Updating earlier story with analyst reaction to Federal Reserve Chairman Ben Bernanke comments

(Kitco News) - Federal Reserve Chairman Ben Bernanke’s second day of congressional testimony did not have a major impact on gold prices Thursday, but he nevertheless raised the eyebrows of those in the industry when he offered some views on the gold market.

He suggesting the yellow metal has fallen in recent months since investors for now are less worried about needing protection in their portfolios.

The Fed chief also commented that “nobody really understands gold prices,” including him.

He made his remarks during the question-and-answer portion during testimony on the economy before the Senate banking panel. This came after an appearance before a House panel Wednesday.

“Gold is an unusual asset,” Bernanke said. “It’s an asset that people hold as sort of disaster insurance. They feel if things go really badly wrong, at least they’ll have some gold in their portfolio.”

He was asked whether he considers this accurate.

“Not all that accurate,” Bernanke said. “For example, a lot of people hold gold as an inflation hedge. But movements in gold prices don’t predict inflation very well, actually.”

He later added: “I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes, therefore they feel less need for whatever protection gold affords.”

August gold on the Comex division of the New York Mercantile Exchange settled after the pit session Thursday at $1,284.20 an ounce, which is a 24% decline from the end of 2012. Bernanke said “psychologically the gold price going down is not necessarily a bad thing” since it suggests investors have more confidence.

The Fed chief concluded: “Let me end by saying that nobody really understands gold prices and I don’t pretend to really understand them either.”