Alan Greenspan and gold: Was the former Fed Chair right?

When Alan Greenspan warned about "irrational exuberance" in 1996, investors largely ignored him. The stock market kept climbing for years.

Three decades later, as investors pile into anything tied to artificial intelligence and trillion-dollar valuations become routine, Greenspan's most famous warning suddenly feels relevant again.

Following the death of the former Federal Reserve chair this week at age 100, investors are revisiting another question: Was he also right about gold?

Why Greenspan believed in gold

Long before he became Federal Reserve chair, Greenspan argued that gold was more than a precious metal - it was a safeguard against excessive government spending, inflation and easy money.

In his 1966 essay "Gold and Economic Freedom," which was first published in Ayn Rand's financial newsletter, The Objectivist, he warned that abandoning a gold-backed monetary system would make it easier for governments and central banks to expand the money supply, eroding the purchasing power of paper currencies over time.

Nearly 60 years later, those concerns have taken on new relevance. Since the global financial crisis, central banks have relied on multiple rounds of quantitative easing, government debt has climbed to record levels and inflation has surged well above the Federal Reserve's long-term target. For many investors, those are precisely the conditions Greenspan believed would strengthen gold's appeal as a store of value.

"Greenspan's philosophies around gold hold to be true to an extent in certain aspects," says Ryan Lee, Chief Analyst of universal exchange Bitget. "Gold may never be able to deliver the same growth profile as equities or emerging technologies in the short term, but it can act as insurance against currency debasement, inflation uncertainty, and policy volatility in the long run."

The origins of Greenspan's gold philosophy

Greenspan's views on gold didn't emerge during his years at the Federal Reserve. They were established decades earlier.

Greenspan's 1966 article provides a clean look at the conservative ideals behind Greenspan's core beliefs: gold is the ideal material for storing wealth and protecting against inflation, and a truly free market will self-correct better than one that a government battles to keep in check.

Greenspan's logic behind the idea of gold as a stand-in for value was simple: It's scarce, durable, homogeneous and easy to split.

What's more, any alternative to a system like the gold standard could be potentially catastrophic. Without being able to convert the value of goods and services to gold, governments could print money, lend against non-tangible "assets" (i.e., government bonds) and potentially collapse the entire global economy.

Those ideas remained central to Greenspan's worldview even as he rose to become one of the world's most influential policymakers. Yet his years leading the Federal Reserve would also expose the limits of some of those convictions - and ultimately force him to publicly reconsider one of his core beliefs.

Would Greenspan recognize today's market?

In 1996, Greenspan famously warned the U.S. that "irrational exuberance" when it came to publicly-traded company valuations would lead to a bubble, the bursting of which could lead to an economic depression akin to what Japan had faced in the preceding decade.

The country at large ignored his warnings, and the recession following the dot-com bubble burst ended what was then the longest stretch of economic growth and expansion the United States had ever seen.

Nearly 30 years after Greenspan coined the phrase "irrational exuberance," investors are once again pouring money into a transformative technology. Artificial intelligence has fueled soaring valuations, trillion-dollar companies and a wave of optimism that some economists believe echoes the late 1990s dot-com boom.

The problem might seem obvious, as history tends to repeat itself, but the solution is muddier. If a young Greenspan were chairperson of the Federal Reserve now, he might opt to let the market correct itself, and he'd likely caution wary investors to resort to gold as a safe haven.

"He would've likely argued that gold still has a place as a stabilizing asset and would've embraced digital assets and other innovations," says Lee.

But Greenspan's legacy is complicated. He admitted to being wrong about a laissez-faire economy when that theory was tested and failed.

'I have found a flaw'

Greenspan remained true to his belief that a free market was best and that artificially tinkering with interest rates would only make a recession worse. He maintained a hands-off economic policy and kept rates low through the aftermath of the bubble bursting, and he ended up self-admittedly inflating the next one: the United States housing bubble.

In a congressional hearing in 2008, Greenspan famously admitted to being wrong about one of his core ideals after finding that banks, when left to their own self-interest, had not acted in a way that protected the market, themselves or their customers.

Greenspan said in the hearing: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact…I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

The debate over Greenspan's gold thesis

Greenspan long held the belief that gold's scarcity and inherent value made it a good investment in a chaotic market. A free market that overextended on credit would see rising interest rates, which would push investors to safer long-term investments like gold, thus making it a convenient and tangible way to counteract inflation.

In some respects, the last 15 years have strengthened that argument. Since the global financial crisis, central banks have engaged in multiple rounds of quantitative easing, government debt has climbed sharply and inflation surged to multi-decade highs following the COVID-19 pandemic. Gold prices have also risen substantially over that period, helping preserve purchasing power during periods of economic stress.

Not everyone sees that as a vindication of Greenspan's thesis, however.

Jeremy Siegel, a seasoned economist and Professor Emeritus of Finance at the Wharton School of the University of Pennsylvania, has vocalized concerns about the efficacy of gold as a buffer to inflation. It holds value reasonably well, but it barely appreciates in the long term when compared to index funds or REITs, and it doesn't provide ongoing income, as stocks can.

Siegel has also cautioned against using fears of market excess to abandon equities altogether.

What happened to investors who followed Greenspan's advice?

In a sense, both Greenspan and his critics were right.

Gold benefited from many of the forces Greenspan warned about, including rising government debt, aggressive monetary policy and inflation. But stocks continued to outperform over the long run, even after the dot-com crash and the financial crisis.

Had an investor exited the stock market after Greenspan's famous 1996 "irrational exuberance" warning, they would have missed several years of substantial gains before the dot-com bubble eventually burst.

In hindsight, Greenspan may have been better at spotting economic risks than predicting how investors should respond to them.

Is Alan Greenspan's case for gold still golden?

The answer depends largely on which parts of Greenspan's economic worldview investors believe still apply today.

Greenspan spent decades arguing that gold served as a safeguard against inflation, government overspending and excessive monetary intervention. As the U.S. grapples with persistent inflation, massive government debt and years of quantitative easing, the case for gold arguably looks stronger today than it did when Greenspan first made it.

But his critics can point to an equally important fact: Stocks still won.

Whether Greenspan's thesis ultimately holds up remains the subject of debate. But understanding why he viewed gold as a hedge against monetary excess helps explain why his ideas are attracting renewed attention today.

This article originally appeared on USA TODAY: Alan Greenspan and gold: Was the former Fed Chair right?

Reporting by Dan Simms, Special to USA TODAY / USA TODAY

USA TODAY Network via Reuters Connect

Copyright Reuters or USA Today Network via Reuters Connect

This story was originally published June 26, 2026 at 9:25 AM.