Here follow the final gold-related paragraphs from a fascinating article from Michael J. Kosares of USAGOLD which explains why, despite the huge increase in liquidity generated by the U.S. Fed with its successive quantitative easing programmes, serious inflation has not been in evidence as many pundits had predicted. To read the full article on the USAGOLD website – click on Gold a safe harbor on an ocean of excess reserves – Now we know why the Fed’s money printing binge never translated to inflation.
Kosares’comments on gold:
I would be remiss if I did not end with a word or two on the role gold might play as all of this sorts itself out. Of the two outcomes just highlighted, disinflation seems the most probable at this juncture. Inflation, it it occurs, will take some time to manifest in the economy itself. No matter the outcome, though, gold and silver coins and bullion remain the best hedge for the average private investor. The greater part of global gold demand today has little to do with gold’s reputation as an inflation hedge. The metal is being accumulated by everyone from private individuals, to huge institutions, central banks and nation states themselves as a hedge against the next financial crisis no matter what form it takes – inflation, disinflation, deflation or hyperinflation.
Gold rose like a phoenix from the ashes of the last financial crisis because it is a store of value and portfolio insurance, not because its market price was about to bolt through the roof (though higher prices were its subsequent fate). We are in a much different situation today than we were back in 2008 and the excess reserve overhang will play heavily in the next stage of the on-going financial crisis. The financial system as a whole still suffers from the damage done by the last phase of the crisis, and it will be on a hair trigger in the new interest rate environment.
If another “event” were to occur today, it would start with a much weaker line-up on the playing field than the last time around and a Fed with fewer, less reliable tools in its toolbox. We suspect that gold and silver demand will continue to grow as the dangers and uncertainties just outlined begin to manifest themselves in the financial marketplace. It will serve as safe harbor on this ocean of excess reserves. Those who understand the virtues of gold ownership are not going to suddenly go to their national currencies, or the banking system, or the New York Stock Exchange as a defense. They will go to gold and silver.