​Why did Greenspan’s tone of voice move gold but not Bernanke’s?

Federal Reserve chairman Bernanke

The tone of voice used by Federal Reserve chairmen when they deliver their speeches can lead to “small but significant” movements in the price of gold and silver, research suggests.

A study by the University of Edinburgh analysed 386 speeches and testimonies given by former Fed chairman Alan Greenspan and current chairman Ben Bernanke to discover if their delivery – and not just content – can influence the markets.

Researchers found that speeches by Greenspan, who headed the central bank between 1987 and 2006, were more likely to have a significant impact on the price of gold and silver than Bernanke’s.

The study used text analysis software to determine the levels of activity, certainty, optimism, realism and commonality in each chairman’s delivery. It found that Greenspan’s speeches tended to convey activity and realism while Bernanke’s tone was more optimistic.

According to the findings, a 1 per cent increase in the amount of certainty in Greenspan’s tone of voice would lift the price of gold bullion by 0.1 per cent and silver bullion by 0.03 per cent.

However, similar rises in Bernanke ́s tone fail to move the market.

University of Edinburgh Business School’s Arman Eshraghi says: “For the first time to our knowledge, this research shows that differences in central banker rhetoric can influence global commodity prices. Gold and silver markets reacted not only to what Alan Greenspan said, but also to how he said it.”