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Wednesday, December 19th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

With Inflation Surging It’s Time to Buy Gold

To be sure, this increase in inflation is exactly what Chairman Bernanke has engineered, but the trillion dollar questions remains: How much control does he have?

The markets already have a preview of central bank activity when we look toward India. India has been raising interest rates in a effort to cool inflation and they have succeeded modestly. However, India and China benefit from a strong economy and a bit of cooling can easily be absorbed.

The developed world is a completely different story, as Europe is struggling with debt and the US economy is struggling to reach escape velocity. Last week, both the head of the ECB (Jean-Claude Trichet) and the head of the Bundesbank (Axel Weber) strongly suggested that price stability is job #1. Our view (and the market’s) was that the US would be the first to raise interest rates, albeit well into 2012. Inflation has changed that dynamic.

In our view, as long a Chairman Bernanke is in charge of the Federal Reserve there is no way he raises rates until at least 2012, if not longer. This leaves the US as the odd man out in tighter monetary policy. The rest of the world, including the UK and Europe are in inflation fighting mode. However, without the cooperation of the US Federal Reserve we believe much of the effort will be wasted.

In much of Chairman Bernanke’s research on the Great Depression he cites instances where it would be prudent for the US central bank to loosen policy… especially if the rest of the world is tightening. In other words, if Bernanke follows his own script, the more other central banks tighten policy, the more he will loosen policy.

In our opinion, this action will exacerbate the imbalances within the global monetary system and will likely hurt the US dollar. The winner in this scenario is inflation and gold.

Gold has held above $1350 for several days and appears to be forming a bottom, as well, GLD has followed suit and appears to be forming a bottom around $132.

The original article is published at

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