Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co (PIMCO) has said the gold is a better investment than bonds and stocks at a time when the world is in a reflationary mode.

Referring to the European Central Bank’s bond buying proposal to ease the debt problem facing the region, Gross told Bloomberg that the plan will lead to the expansion of the ECB’s balance sheet, which has already doubled in recent years. The ECB’s balance sheet has risen from about $2 trillion a few years back to nearly $4 trillion earlier this year. ECB officials have said that the bond purchases will be sterilized.

ECB President Mario Draghi’s plan for unlimited purchases of short term bonds (having a maturity of up to three years) issued by the financially troubled members of the Eurozone is likely to be funded by printing more money, Gross pointed out.  This in turn will result in inflationary tendencies and worsen the situation further. The private credit market is too high and the age of credit expansion is over, Gross added.

Referring to the investment potential of bonds and stocks, Gross who is often called the Bond King said the two products no longer offer good returns that are adequate for funding one’s education or retirement. Historically bonds and stocks offered returns as high as 10% and thus were considered highly lucrative investments. However, in today’s time bonds offer returns as low as 2-3% and the returns available from investment in stocks stand at about 4-5%. Investors who realize this and are willing to accept such returns should only invest in bonds and stocks. Investors, Gross says should instead look towards gold.

Gold is available in limited amount and cannot be reproduced, Gross points out. In contrast central banks across the world have been printing money which means supply of paper money is high. Limited availability makes gold more attractive than paper money, Gross says. Investment in something which is tangible is always better than paper money.
Although several central banks are getting back into gold trade, the market for gold is not yet crowded, Gross says. Investors can invest in gold markets through ETFs.

Referring to the US economic scenario, Gross said Federal Reserve Chairman Ben Bernanke has been fairly successful in his attempt to bring recovery via Quantitative Easing or QE. The US is unlikely to return back to recession. Although some dramatic fiscal cliffs do exist in front of the US economy and its going to be difficult to stimulate the US economy at a rate higher than 2%.