Inflation's Not Driving Gold's Bullish Run


"If gold prices are tied to inflation, then why has spot gold risen a cumulative 300% this decade compared to just 25% for U.S. CPI?"

Gold is rising because the post-Breton Woods exchange rate system doesn't work.

More than ever, governments are loading up on debt as a result of bailing out their respective banking systems. And there's a price to pay for this profligate spending. Gold sniffs trouble.

Gold has traditionally been viewed as the best inflation hedge since the creation of fiat coins under the Roman Empire. When deficits became too large—namely to fund foreign conquests—the Romans simply chipped-off parts of the coin…de facto inflation.

Now inflation leads to the debasement of our purchasing power and ultimately reduces our long-term standard of living. No other monetary phenomenon has plagued central bankers more than inflation—except for deflation—the worst of two evils…

And deflation—not inflation—has gripped the world economy since the asset "bubble" pricked in July 2008. Stocks, bonds, commodities, real estate and even fine art and the most expensive French red wine vintages have all declined sharply over the last 20 months. Despite a massive recovery since March for most of these risk assets, investors are still sitting on double-digit losses since January 2008.

If gold prices are tied to inflation then why has spot gold risen a cumulative 300% this decade compared to just 25% for U.S. CPI? Something doesn't give. True, gold should exceed inflation but that rate of excess performance belies a different story behind this rally.

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