It’s not just Malaysians confused over government spending – big time fund managers are pretty foggy about the notion too (excerpt):
Gold Bulls Expand as Billionaire Paulson Says Buy: Commodities
Feb. 17 (Bloomberg) -- Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending…
…Speculators in U.S. gold futures are now their most bullish since September after the Bank of England and Bank of Japan said they will buy more assets and the Federal Reserve said it was considering purchasing more bonds. Central banks are also expanding their bullion reserves, adding 439.7 tons last year, the most in almost five decades. They may buy a similar amount in 2012, the London-based World Gold Council said yesterday.
“The appalling state of fiscal finances of most industrial nations does lead to concerns about the possibility of inflation,” said Mark O’Byrne, executive director of Dublin- based GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. “Gold is a crucial diversification given the various risks out there.”
When we have “appalling fiscal finances”, I’d be worried about growth, not inflation. When central banks pump money into the economy, and unemployment and output barely budges, I’d again be worried more about growth than inflation.
How on earth government spending is supposed to be inflationary when there’s so much production slack in Western economies is beyond me. Most of the inflationary pressure that has turned up is mostly derived from depreciating currencies, driving up the cost of imports – i.e. it’s coming from the supply-side, not from domestic spending.
Whether you buy gold or not is up to you – there’s certainly enough risk out there, as well as fundamental demand, that prices would hold up. Just don’t think that the market’s going up because of inflationary government spending.
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