Gold Investments Market Update – Global Monetary Helicopters Being Advocated to Prevent Deflation

Gold gave up some of the Election Day gains yesterday on profit taking due to sharply lower oil (WTI $Dec down $5.23 to $65.30) and commodity prices (the CRB Commodities Index fell 10.25 to 267.97) on fears of significant demand destruction due to a protracted global recession. Silver was the exception and was more robust and continued to rise after the previous day’s sharp gains.

With open interest levels in the gold and silver futures market at very low levels – levels that usually presage lows in the price – it appears that shorts are aggressively closing their positions at these levels in anticipation of a rising price in the coming weeks. Speculative interest has been decimated in recent weeks and many of those who to coin a phrase ‘know the price of everything but the value of nothing’ have had their heads handed to them on a plate.

With open interest levels in the gold and silver futures market at very low levels – levels that usually presage lows in the price – it appears that shorts are aggressively closing their positions at these levels in anticipation of a rising price in the coming weeks. Speculative interest has been decimated in recent weeks and many of those who to coin a phrase ‘know the price of everything but the value of nothing’ have had their heads handed to them on a plate.

The reality of a likely sharp global recession is setting in due to the increasingly gloomy outlook for the global economy. With the Bank of England and ECB likely to aggressively cut interest rates today (possibly as much as 100 bps in the BoE’s case) central bankers are attempting to inflate their way out of a deflationary slump. All that is missing is Bernanke’s monetary helicopters showering dollars on the US citizenry in order to prevent an economic crash and Depression.

Bernanke is not the only central banker who might choose to use the “nuclear option” of the monetary helicopters. An editorial in the FT has warned that such drastic monetary measures may be needed internationally. “If ordinary policies fail to avert slump and deflation, the monetary printing press is the final tool at the disposal of policymakers. The government could borrow directly from the central bank and distribute the newly created money to households and firms. This worst-case scenario is a long way off. Yet events in recent months have validated the most pessimistic predictions.”

Indeed they have and with such drastic, unprecedented measures now being advocated  – a scenario of severe stagflation and possibly even hyperinflation looks like an increasing possibility in the coming years.

Mark O'Byrne

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