The threat of inflation has historically been a primary force driving gold investment. Posted by James Randolph on November 16, 2010
November 16, 2010 – The threat of inflation has historically been a primary force driving gold investment. But many experts contend that inflation is but a distant concern and not a likely result of current stimulus measures, citing Japan where such measures have been employed for a decade without inflation. So why are investors from every corner turning to gold investments to hedge against such a remote possibility? In Time for Anti-Inflation Planning, Wall Street Journal’s Dave Kansas suggests some answers to that question.
Although stated government policy is to prevent inflation, it nevertheless would help alleviate two of the most urgent problems we face today. As we saw in the midterm election, the persistent high rate of unemployment has tremendous political power and politicians are well aware that inflation could be instrumental in creating jobs. Also on top of the electorate’s collective mind is the national debt, which would be effectively reduced if inflation were to make the dollar cheaper. Inflation may be a dirty word to politicians, but the political capital to be gained from reducing the debt and lowering unemployment far outweighs that which inflation might cost.
Another important consideration when hedging against inflation is timing. While few agree on when it will occur there is little doubt that ultimately inflation is inevitable. The problem, according to the J.P. Morgan Chase asset-allocation group, is that "We can’t tell where this turn comes, but history warns us it tends to happen suddenly and violently."
With interest rates hovering near zero, there is little to lose by preemptive gold investing before the turn. Holding off gold investment until inflation arrives, if the reversal is indeed sudden and violent, might well be a case of too little too late.
Senior Staff Writer – Certified Gold Exchange