Flight to Gold as Investors Lose Faith in Money

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...So are the new powers turning to gold instead, mistrusting the euro as much as the dollar? Their footprints have not yet shown up in the IMF reserve data, but there can be long delays, and China does not report data. Vladimir Putin has told Russia's central bank to raise the gold share of its $469bn reserves to 10 per cent...

...gold is undoubtedly flashing warning signs. The price has jumped 42 per cent since the US credit markets suffered their heart attack in August. It has tripled since Gordon Brown sold over half Britain's reserves, deeming it a barbarous relic. That conceit has cost taxpayers 3.4bn, after adjusting for returns from dollar, euro, and yen bonds.

The mounting risk that Pakistan's nuclear weapons could fall into the hands of al-Qa'eda is playing a role. So are fears that Western leaders have no credible answer to the banking crisis as it drags on for month after month.

Note that gold smashed the 28-year record just days after the European Central Bank launched its monetary "shock and awe", showering half a trillion dollars on the banks, with parallel moves by the Fed, the Bank of England and the Swiss. Clearly, a small army of investors is betting - rightly or wrongly - that our debt-bloated democracies are now too decadent to take their punishment. The elites will opt for the easy path of reflation to postpone the day of reckoning.

Ben Bernanke, the Fed chief, is viewed as an inflationist. He once talked of dropping bank notes from helicopters. Loose words have consequences if you are a Fed governor.

"The central banks are flooding the market with paper," Peter Hambro of Peter Hambro Mining, said. "Does anybody now take the dollar, the euro or the pound seriously? People are turning to gold because it is the only hard store of value," he said.

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