Alan Greenspan

Alan Greenspan was born in 1926 in New York City. He received his Ph.D. in economics from New York University in 1977. Before his career at the Fed, Greenspan worked both in private and public sector. In particular, he run Townsend-Greenspan & Co., Inc., a consulting company. He also worked as an adviser for Richard Nixon’s 1968 presidential election campaign and was a Chairman of the Council of Economic Advisers under President Gerald Ford.

In 1987, President Ronald Reagan nominated Greenspan as a successor to Paul Volcker as the Fed Chair. He took office on August the 11th, 1987 and remained in that role until January 31st, 2006, when Ben Bernanke succeeded him. He served five terms through the administrations of four America’s presidents. It was the second-longest tenure in the position (behind William McChesney Martin).

After leaving the Board of Governors, Greenspan began his own Washington DC-based consulting firm, Greenspan Associates, LLC. His memoir, The Age of Turbulence, was published in 2007.

Greenspan and Gold

What was the Greenspan’s impact on gold? Well, it was positive on balance, as gold gained about 20 percent under his tenures, as one can see in the chart below.

Chart 1: Gold prices (London P.M. Fix, in $, monthly averages) under Greenspan’s Fed tenure.

However, the gold was in the bear market in 1987-2001, i.e., for the most of Greenspan’s tenure. It should not be surprising, as Greenspan had a reputation for being strongly anti-inflation (and indeed inflation diminished significantly compared to the 1970s). At the same time, Greenspan firmly led the Federal Reserve through several events with major economic repercussions, including two US recessions, eagerly providing liquidity to the financial markets (such a stance was later named Greenspan put). Actually, he was given a share of the credit for the longest official economic expansion in U.S. history (March 1991–February 2000).

Gold started to soar in 2001, when Greenspan – in response to the burst of the dot-com bubble, September the 11th attacks and various other corporate scandals, initiated the series of interest rate cuts that pushed the federal funds rate in 2004 to unprecedented then level of 1 percent. Greenspan’s loose monetary policy at the time overlapped with an expansionary fiscal policy conducted by George W. Bush.

Greenspan served as the Fed Chair until 2006, but his impact on the gold market continued. The series of interest rate cuts from 2001-2004 helped to pump the real estate bubble, which burst in 2007, putting the world into the Great Recession in 2008. The financial crisis boosted the gold prices even more.

And a funny thing about Greenspan’s view on gold at the end. Before his service at the Fed, Greenspan was very close to Ayn Rand and the libertarian movement. In 1966, he even wrote a brilliant article titled “Gold and Economic Freedom” in which he emphatically stated that “Gold and economic freedom are inseparable”. Quite ironic, don’t you think?