As the rest of the planet wraps its head around central bankers’ zero-directive—as in zero interest rates and a blast of balance sheet ballast to keep currencies in spending hands—we are searching for the next big beneficiaries.
On Wednesday afternoon, I shall be appearing on Fox Business News to explain why $2,500 gold, even $3,000 gold—and even $100 per gram—will be one result the chasm bankers must negotiate between plunging consumer prices and printing literally tons of currency rolls at Federal Reserve Mints across North America.
Gold is almost surely on its way to an inflation-adjusted high, which is approximately $2,500 (based on January 1980 high of $870 an ounce), depending on whose inflation figures are used. I talked to former economist, author and GoldMoney.com owner James Turk and asked him why 2009 will be different than 1932. I asked: How can gold rise if the American dollar (and other currencies) stay flat or “dry up” in a rapid and severe deflating of economies and consumer prices?
“Dollars became scarce in. . .the Great Depression for one reason. The gold standard then in place restricted the number of dollars that could be created by the Federal Reserve,” he said. “. . .as people sought gold to avoid the risk of bank failures, they redeemed dollars for gold, which forced a contraction in the quantity of dollars in circulation.” Deflation was the result.
“Today there is no constraint on the quantity of dollars that can be created,” said Turk, “and the Fed announced yesterday that it will ‘employ all available tools’ to flood the system with dollars in the hope that low interest rates and easy money will jump-start a moribund economy.”
Currencies, starting with the dollar, eventually will suffer from the ballast blasting that always comes with additional currency flooding a nation and planet. Yet the purchasing power of gold can and will rise, albeit some of its heft punctured by those inflationary dollars.