While gold is a hedge against inflation fears, U.S. consumer prices will likely fall this year, with some estimates coming in at a 0.5% drop. Any decline would be the first in five decades. (1) Nevertheless, massive deficit spending, the Federal Reserve keeping interest rates near zero and major increases in the money supply have investors worried, and why shouldn’t they be? The 1960’s saw debt financing of Vietnam, the moon mission and the Great Society; a recipe for major stagflation in the 1970’s. The 1990’s and 2000’s have produced huge war financing and U.S. presence abroad, social engineering deficit spending, bailouts and an unprecedented increase in the money supply. Bullion is headed for a ninth straight annual gain, after increasing 18 percent this year. (1)
Before you buy the jobless recovery pitch from our financial leaders, think about buying bullion instead.
In additional news, oil-exporting countries and big energy consumers such as China, Russia, Japan and France, are having a pow-wow to discuss the end of dollar-denominated crude oil. Translation: they don’t want to buy oil in a highly, or hyper, inflated currency; instead hoping for oil transactions denominated in a basket of currencies. This is an obvious hedge against U.S. monetary and fiscal policy, the same fears investors have when buying gold.
Yes, gold markets can experience speculative manias like any other. But gold is more of a reactive marketplace, countering punches from monetary policy (which fund fiscal policy). Plus, it’s a commodity, unlike the vacant mini-mansions still sitting from the housing/money bubble.
(1) Gold at Record Shows Investors Split With Banks Over Inflation – 2009, Bloomberg.com, retrieved October 6, 2009,