Fed’s Kocherlakota Says Gold Plunge May Not Indicate Confidence

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said it’s too soon to say a plunge in gold prices stemmed from greater investor confidence in the U.S. economy.

“Confidence is a key missing variable in the economy right now,” Kocherlakota said today in response to audience questions after a speech in Minneapolis. “I hope we can tell a story, going down the road, where we look back and say, ‘Boy that decline in gold prices was a sign that people have more confidence in the economy.’ I am not willing to do that based on a one-day fall no matter how sharp.”

Gold prices slumped 14 percent in the two days through yesterday, the most since February 1983. The metal, which rallied for the past 12 years in the longest gain in at least nine decades, has lost 28 percent since climbing to a record $1,921.15 an ounce in September 2011.

Kocherlakota also said the Fed doesn’t target asset prices, but has sought to lower interest rates as a way to fuel growth and increase employment. Current valuations of equities seem to be within historical ranges and don’t suggest “evidence of bubbliness or frothiness” in prices, he said.

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